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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
COMMISSION FILE NUMBER 0-18708
MICROGRAFX, INC.
(Exact name of registrant as specified in its charter)
TEXAS 75-1952080
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
505 MILLENNIUM DRIVE, ALLEN, TX 75013
(Address of principal executive offices) (Zip Code)
(214) 495-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
As of April 30, 2000, 11,454,458 shares of the Company's common stock were
outstanding.
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<PAGE>
MICROGRAFX, INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
PART I.
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of 3
March 31, 2000, and June 30, 1999
Consolidated Statements of Operations for the three and 5
nine months ended March 31, 2000 and 1999
Consolidated Statements of Cash Flows for the 6
nine months ended March 31, 2000 and 1999
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk 17
PART II.
Item 1. Legal Proceedings 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURES 20
</TABLE>
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MICROGRAFX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<S> <C> <C>
MARCH 31, JUNE 30,
2000 1999
----------- -----------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,093 $ 8,819
Short-term investments - 2,401
Accounts receivable, net of allowances of $2,914 and $2,825 5,055 6,480
Inventories 628 570
Other current assets 878 1,478
----------- -----------
Total current assets 10,654 19,748
Property and equipment, net 2,778 2,143
Capitalized software development costs, net 6,281 5,994
Acquired product rights, net 2,340 3,601
Goodwill, net 9,131 9,907
Other assets 824 990
----------- -----------
Total assets $ 32,008 $ 42,383
=========== ===========
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
MICROGRAFX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<S> <C> <C>
MARCH 31, JUNE 30,
2000 1999
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,423 $ 3,833
Accrued compensation and benefits 1,856 2,189
Other accrued liabilities 3,276 2,567
Deferred revenue 1,811 1,651
Notes payable - 3,500
Receivable facility 1,082 -
Income taxes payable 272 403
----------- -----------
Total current liabilities 11,720 14,143
Long-term debt 5,797 5,797
Other non-current liabilities 79 11
Shareholders' equity:
Common stock, $.01 par value, 20,000,000 shares authorized;
12,205,729 and 12,131,227 shares issued 122 122
Additional capital 37,663 37,622
Accumulated deficit (15,999) (6,746)
Accumulated other comprehensive loss (1,637) (1,610)
Less - treasury stock (751,281 and 909,195 shares), at cost (5,743) (6,950)
Deferred compensation - (6)
Warrants outstanding 6 -
----------- -----------
Total shareholders' equity 14,412 22,432
----------- -----------
Total liabilities and shareholders' equity $ 32,008 $ 42,383
=========== ===========
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
MICROGRAFX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
<S> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
------------------------------ ------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
Net revenues $ 9,932 $ 14,472 $ 28,110 $ 47,256
Cost of revenues 1,996 1,592 6,212 8,027
------------- ------------- ------------- -------------
Gross profit 7,936 12,880 21,898 39,229
Operating expenses:
Sales and marketing 5,939 8,447 19,058 25,752
General and administrative 1,641 1,455 5,598 4,769
Net research and development 1,879 1,854 5,669 6,000
------------- ------------- ------------- -------------
Total operating expenses 9,459 11,756 30,325 36,521
------------- ------------- ------------- -------------
(Loss) income from operations (1,523) 1,124 (8,427) 2,708
Interest income 7 197 50 823
Interest expense (142) (26) (418) (136)
Other (expense) income, net (123) (89) 5 (197)
------------- ------------- ------------- -------------
Total non operating (expense) income (258) 82 (363) 490
------------- ------------- ------------- -------------
(Loss) income before income taxes (1,781) 1,206 (8,790) 3,198
Income tax provision 188 422 463 1,119
------------- ------------- ------------- -------------
Net (loss) income $ (1,969) $ 784 $ (9,253) $ 2,079
============= ============= ============= =============
Basic (loss) income per share $ (0.17) $ 0.07 $ (0.81) $ 0.19
============= ============= ============= =============
Diluted (loss) income per share $ (0.17) $ 0.07 $ (0.81) $ 0.18
============= ============= ============= =============
See accompanying notes.
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
MICROGRAFX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<S> <C> <C>
NINE MONTHS ENDED MARCH 31,
--------------------------------------
2000 1999
----------------- ------------------
Cash flows from operating activities:
Net (loss) income $ (9,253) $ 2,079
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 5,404 5,896
Deferred income taxes and other 63 1,193
Changes in operating assets and liabilities:
Accounts receivable 1,425 4,067
Inventories (58) 472
Other current assets 600 (289)
Payables and accruals (34) (3,169)
Deferred revenue 160 (10,133)
Income taxes payable (131) (340)
----------------- ------------------
Net cash used in operating activities (1,824) (224)
----------------- ------------------
Cash flows from investing activities:
Proceeds from maturities of short-term investments 3,440 6,233
Purchases of short-term investments (1,039) (15,078)
Capitalization of software development costs and
purchases of acquired product rights (2,434) (6,060)
Purchases of property and equipment, net (1,671) (1,007)
----------------- ------------------
Net cash used in investing activities (1,704) (15,912)
----------------- ------------------
Cash flows from financing activities:
Proceeds from employee stock programs 348 3,073
Proceeds from receivable facility 1,082 -
Treasury stock acquired - (4,066)
Payments of notes payable (2,600) (125)
Tax benefits realized from stock transactions - 329
----------------- ------------------
Net cash used in financing activities (1,170) (789)
----------------- ------------------
Effect of exchange rates on cash and cash equivalents (27) 321
----------------- ------------------
Net decrease in cash and cash equivalents (4,726) (16,604)
Cash and cash equivalents, beginning of period 8,819 26,483
----------------- ------------------
Cash and cash equivalents, end of period $ 4,093 $ 9,879
================= ==================
See accompanying notes.
</TABLE>
6
<PAGE>
MICROGRAFX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements of Micrografx,
Inc., and subsidiaries (the "Company") at March 31, 2000, and for the three and
nine-month periods ended March 31, 2000, and 1999 are unaudited but reflect all
adjustments, which are of a normal recurring nature and, in the opinion of
management, necessary for a fair presentation of the financial position and
results of operations for the periods presented. The accompanying financial
statements and notes thereto should be read in conjunction with the Company's
audited consolidated financial statements for the year ended June 30, 1999,
included in the 1999 Annual Report to Shareholders. The results of operations
for the three and nine-month periods ended March 31, 2000, are not necessarily
indicative of results to be expected for the year ending June 30, 2000.
REVENUE RECOGNITION
Revenue from packaged product sales to distributors and resellers is recognized
when related products are sold through to the end user. Maintenance and
subscription revenue is recognized ratably over the contract period. Revenue
from products licensed to original equipment manufacturers ("OEMs") is recorded
when OEMs ship licensed products while revenue from multi-user licenses is
recorded when the software has been delivered. In connection with the sale of
certain products, the Company provides free telephone support service to
customers. The Company does not defer the recognition of any revenue associated
with sales of these products, since the cost of providing this free support is
insignificant, the support is provided within one year after the associated
revenue is recognized (the vast majority of the support actually occurs within
three months) and enhancements are minimal and infrequent. The estimated cost of
providing this free support is accrued upon product shipment. Provisions are
recorded for returns and bad debts based on historical experience.
INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
MARCH 31, 2000 JUNE 30, 1999
------------------------- -------------------------
(UNAUDITED)
Raw materials $ 443 $ 404
Finished goods 185 166
------------------------- -------------------------
$ 628 $ 570
========================= =========================
</TABLE>
FOREIGN FORWARD CURRENCY EXCHANGE CONTRACTS
The Company periodically enters into forward foreign currency exchange contracts
to hedge existing or projected exposure to changing foreign exchange rates. This
exposure results from the Company's foreign operations in countries including
Germany, France, the United Kingdom, the Netherlands, and Japan that are
denominated in currencies other than the U.S. dollar. These forward contracts
are not held for trading purposes. At March 31, 2000, the Company had no forward
contracts outstanding.
COMPREHENSIVE INCOME
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" established rules for the reporting and presentation of
comprehensive income and its components. The Company's comprehensive income
(loss) is comprised of net income (loss) and foreign currency translation
adjustments. Comprehensive loss is approximately $2 million for the three months
ended March 31, 2000 compared to comprehensive income of approximately $646,000
for the three months ended March 31,1999. Comprehensive loss is approximately
$9.3 million for the nine months ended March 31, 2000 compared to comprehensive
income of approximately $2.4 million for the nine months ended March 31, 1999.
7
<PAGE>
(LOSS) INCOME PER SHARE
(Loss) income per share for all periods presented is based on the weighted
average basic and dilutive equivalent shares outstanding using the treasury
stock method. Amounts are shown in thousands except for per share data.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
March 31, March 31,
-------------------------- ------------------------
2000 1999 2000 1999
---------- ----------- --------- -----------
Numerator:
Net (loss) income $ (1,969) $ 784 $ (9,253) $ 2,079
Denominator:
Denominator for basic earnings per
share - weighted average shares 11,436 11,076 11,372 11,102
Effect of dilutive employee stock options - 328 - 387
---------- ----------- --------- -----------
Denominator for diluted earnings per
share - weighted average shares and
assumed conversions 11,436 11,404 11,372 11,489
========== =========== ========= ===========
Basic (loss) income per share $ (0.17) $ 0.07 $ (0.81) $ 0.19
========== =========== ========= ===========
Diluted (loss) income per share $ (0.17) $ 0.07 $ (0.81) $ 0.18
========== =========== ========= ===========
</TABLE>
Options and convertible securities to purchase approximately 2,929,460 shares of
Common Stock were excluded from the diluted loss per share calculation because
they were anti-dilutive for the three and nine months ended March 31, 2000.
These included all options outstanding as of March 31, 2000, plus 579,700 shares
related to the subordinated convertible debentures issued in connection with the
InterCAP Graphics Systems, Inc. ("InterCAP") acquisition.
LEGAL PROCEEDINGS
As previously reported, Micrografx has filed litigation in the federal district
court for the Northern District of Texas, asking for declaratory relief that an
at-will interim letter agreement between THINK New Ideas, Inc. ("THINK") and
Micrografx may be terminated by Micrografx as of May 3, 1999, without additional
payment to THINK. THINK filed its counterclaim, alleging that the agreement
could be terminated only with ninety days notice, and not without the payment of
an additional amount of compensation in the amount of $889,000, which THINK
alleges Micrografx promised to pay under agreement with THINK. Micrografx
disputes the notice period for termination and that any additional money is
owed, beyond an agreed monthly retainer of $83,000, which was paid to THINK
until the termination of the interim agreement. THINK also filed a complaint in
federal court in Los Angeles making the same allegations it asserted in its
counterclaim in the Texas action. THINK also filed in the Texas court a motion
to transfer the Dallas lawsuit to Los Angeles on the grounds Los Angeles is a
more convenient forum. THINK's motion to transfer the Texas lawsuit was granted,
and the Dallas lawsuit has been transferred to Los Angeles federal court.
Interrogatories and document requests were answered by both parties in March
2000. Depositions will likely be conducted during April and May 2000. Management
believes the likely trial date will be in 2001.
The Company is also subject to certain legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management, the resolution
of these legal proceedings and claims will not have a material effect on the
Company's consolidated financial position and results of operations.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Form 10-Q contains certain "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Specifically, all statements other than statements of
historical facts included in this report regarding the Company's financial
position, business strategy and plans, and objectives of management of the
Company for future operations are forward-looking statements. These
forward-looking statements are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," and "intend," and words or phrases of similar
import, as they relate to the Company or Company management, are intended to
identify forward-looking statements. Such statements (the "cautionary
statements") reflect the current view of the Company with respect to future
events and are subject to risks, uncertainties, and assumptions related to
various factors including, without limitation, changes in the product release
schedule, acceptance or the lack thereof of the Company's products, growth or
the lack thereof in the enterprise solutions business of the Company, changes in
distribution channels, changes in the market, new products and announcements
from other companies, changes in technology, and competition from larger, more
established competitors. Although the Company believes that expectations are
reasonable, it can give no assurance that such expectations will prove to be
correct. Based upon changing conditions, should any one or more of these risks
or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected, or intended. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary statements.
GENERAL
Micrografx, Inc. ("Micrografx" or the "Company"), develops and markets graphics
software that gives a company the ability to monitor, evaluate and improve their
business processes. The Company is focusing on graphics applications software
products for business use in the areas of process management and the management
of technical graphics. Additionally, the Company seeks to leverage its
technology base by partnering with organizations to maximize the distribution
and value of its intellectual property.
Historically, the Company has developed a variety of graphics oriented software
products. These products included various technologies such as image editing, 3D
object rendering, basic drawing tools for both the consumer and corporate
markets, greeting card software for the personal creativity market,
flowcharting, process simulation, and technical drawing. In fiscal year 1997,
management and the board of directors concluded that Micrografx did not have the
critical mass to continue to support the number of technologies it was pursuing.
As a result, several changes were made in the management team and structure of
the Company. In 1997, the new management team began the process of determining
which technologies the Company should pursue as part of its long-term strategy.
It was determined that the greatest potential value was in pursuing solutions
for the corporate market and to de-emphasize the consumer market. While pursuing
this change in direction, the challenge has been to maintain profitability in
the face of phasing out technologies that did not fit into the long-term
strategy of the Company and changing the internal infrastructure and employee
skill sets to line up with the Company's long-term strategy.
The first significant steps in the strategic change process were the licensing
of Micrografx consumer technologies: drawing, greeting card and consumer image
editing, to Cendant Software Corporation ("Cendant") effective June 30, 1998 and
the assignment of the Company's distribution rights for American Greetings
CreataCard Gold and CreataCard Plus to The Learning Company ("TLC") in August of
1998. These agreements ended Micrografx development and distribution of these
products and completed the Company's de-emphasis of the consumer market in order
to focus on the enterprise process management and technical graphics markets.
The combined value of these licensing and assignment agreements was
approximately $21 million. The $21 million was recognized as technology
licensing revenue in varying amounts from the fourth quarter of 1998 through the
fourth quarter of 1999, depending upon the actual delivery of the technologies
and services associated with the agreements.
Ultimately, management concentrated on two areas of corporate software:
enterprise process management and technical graphics. The enterprise process
management products are iGrafx Professional, iGrafx Process, Micrografx
FlowCharter and Optima. The technical graphics products are iGrafx Designer and
ActiveCGM (resulting from the acquisition of InterCAP Graphics Systems, Inc.
("InterCAP") from Intergraph Corporation on April 16, 1999). These two
categories represent the
9
<PAGE>
greatest potential as the underlying technologies provide the opportunity
to develop significant solutions for corporations in addition to licensing
the basic technologies to corporations for general use.
The Company was initially organized as a partnership in June 1982 and was
subsequently incorporated in the State of Texas in March 1984. The principal
executive offices of the Company are located at 505 Millennium Drive, Allen,
Texas, 75013, and its telephone number is (214) 495-4000. The Company's U.S.
operations are based in Allen, Texas, with a development office located in
Portland, Oregon and a sales and development office in Annapolis, Maryland.
International subsidiaries are located in the United Kingdom, France, Germany,
Italy, the Netherlands, Switzerland, Australia, and Japan.
10
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net revenues of certain items in the Company's Consolidated
Statements of Operations. For comparative purposes, the pro forma results for
the three and nine months ended March 31, 1999 exclude the technology licensing
revenues to Cendant and TLC for 1999. For comparative purposes the pro forma
percentages following (loss) income from operations are not meaningful.
Historical results and percentage relationships are not necessarily indicative
of operating results for any future period.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------------------------------- --------------------------------------------
2000 1999 1999 2000 1999 1999
------------ --------------- --------------- ------------- --------------- ---------------
(AS REPORTED) (PRO FORMA) (AS REPORTED) (PRO FORMA)
Net revenues 100% 100% 100% 100% 100% 100%
Cost of revenues 20% 11% 15% 22% 17% 26%
--- --- --- --- --- ---
Gross profit 80% 89% 85% 78% 83% 74%
Operating expenses:
Sales and marketing 60% 58% 79% 68% 54% 85%
General and administrative 16% 10% 14% 20% 10% 15%
Research and development 19% 13% 17% 20% 13% 20%
--- --- --- --- --- ---
Total operating expenses 95% 81% 110% 108% 77% 120%
(Loss) income from operations (15%) 8% (25%) (30%) 6% (46%)
Non operating (expense) income, net (3%) - N.M. (1%) 1% N.M.
(Loss) income before income taxes (18%) 8% N.M. (31%) 7% N.M.
Income taxes 2% 3% N.M. 2% 2% N.M.
Net (loss) income (20%) 5% N.M. (33%) 5% N.M.
</TABLE>
11
<PAGE>
The following table sets forth net revenues by product category (in thousands)
and the percentage relationship to total net revenues. The enterprise process
management category includes iGrafx Professional(TM), iGrafx Process(TM),
Micrografx FlowCharter(R) and Optima(R). The technical graphics category
includes Micrografx Designer(R), iGrafx Designer(TM) and the ActiveCGM(TM)
products.
The technology category results from the Company's use of its library of
graphics software in selective licensing. For fiscal 1999, the technology
category consists of the licensing of certain personal creativity software
source code to Cendant and TLC. The heritage category includes American
Greetings(R) CreataCard(R) Plus(TM), American Greetings(R) CreataCard(R)
Gold(TM), iGrafx Business(TM), Micrografx Graphics Suite, NetworkCharter(TM),
Picture Publisher(R), Simply3D(R), Webtricity(TM), Windows Draw(R),
Simply3D(R)(TM), and Picture Publisher(R).
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Three Months Ended March 31, Nine Months Ended March 31,
---------------------------------------- -------------------------------------
2000 % 1999 % 2000 % 1999 %
------------ ------- ----------- ------ ----------- ------ ----------- ------
Enterprise process management $ 4,658 47% $ 4,299 30% $ 12,075 43% $ 11,857 25%
Technical graphics 2,205 22% 296 2% 7,466 27% 977 2%
Heritage 3,069 31% 6,066 42% 8,569 30% 17,617 37%
Technology - - 3,811 26% - - 16,805 36%
------------ ------- ----------- ------ ----------- ------ ----------- ------
Total net revenues $ 9,932 100% $ 14,472 100% $ 28,110 100% $ 47,256 100%
============ ======= =========== ====== =========== ====== =========== ======
</TABLE>
ENTERPRISE PROCESS MANAGEMENT
Enterprise process management revenues are up slightly over the prior year as
iGrafx Professional and iGrafx Process sales continue to improve each quarter.
Micrografx has historically had a strong presence in this market with its
FlowCharter product, which continues to sell well as the result of existing
agreements with large customers. The Company is actively working with its
installed base of FlowCharter users to upgrade them to Professional and Process.
The Company expects sales of Professional and Process to continue to increase
while sales of FlowCharter will continue to decrease.
TECHNICAL GRAPHICS
Technical graphics revenues continue to show sizable increases over the prior
year. The most significant increase results from sales of iGrafx Designer, which
was released in the fourth quarter of fiscal 1999. Previous versions of the
Designer product have a significant and loyal customer base, especially in
Europe and Japan. The release of iGrafx Designer has spurred significant
revenues as these existing customers have been upgrading from older versions of
Designer. The increase in technical graphics is also due to sales of ActiveCGM
products acquired by Micrografx in the InterCAP acquisition in April 1999.
12
<PAGE>
HERITAGE
Historically, the Company had a strong presence in the consumer retail markets
which has diminished since the licensing of the Windows Draw and CreataCard
products to Cendant and TLC. The Company has continued to sell consumer oriented
products such as Simply 3D, Picture Publisher, and Webtricity, but the volume of
sales and the significance of Micrografx as a supplier in these markets has
dropped without the benefit of the two high-volume products (Draw and
CreataCard).
TECHNOLOGY
The technology category contains revenue recognized related to the previously
discussed Cendant and TLC relationships. As of June 30, 1999, all revenue
related to these transactions had been recognized. The Company may seek other
licensing relationships in order to leverage its portfolio of technologies,
however, there can be no assurance that the Company will be able to enter into
licensing relationships in the future.
Net revenues by geographical region (in thousands) for the three and nine months
ended March 31, 2000, and 1999 were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THREE MONTHS ENDED MARCH 31, NINE MONTHS ENDED MARCH 31,
----------------------------------------- ------------------------------------------
2000 % 1999 % 2000 % 1999 %
------------ ------ ----------- ------- ----------- ------- ----------- -------
Americas $ 4,140 42% $ 5,213 36% $ 10,736 38% $ 12,704 27%
Europe 4,641 47% 4,628 32% 14,628 52% 15,383 33%
Asia Pacific 1,151 11% 820 6% 2,746 10% 2,364 5%
Technology - - 3,811 26% - - 16,805 35%
------------ ------ ----------- ------- ----------- ------- ----------- -------
Total $ 9,932 100% $ 14,472 100% $ 28,110 100% $ 47,256 100%
============ ====== =========== ======= =========== ======= =========== =======
</TABLE>
The decline in Americas revenue, both for the third fiscal quarter and
year-to-date, is primarily due to the previously discussed decline in heritage
products. The expected negative trend in the U.S. retail markets is being
partially offset by the successes from the continued emphasis on sales to
corporate customers in the U.S. as evidenced by recent announcements by
customers such as PricewaterhouseCoopers, Sikorsky, California DMV, Diebold, and
McKesson HBOC. Europe and Asia Pacific have made significant progress in the
transition to corporate sales with Asia Pacific showing year-over-year revenue
growth. Furthermore, European revenues would have shown year-over-year growth if
the foreign currency exchange rates had stayed constant.
The Company's operating results are affected by changes in foreign currency
exchange rates. These variations result from the change in exchange rates of
European currencies and the Japanese yen versus the U.S. dollar. Exchange rates
thus far during fiscal 2000 have had an unfavorable impact on net revenues
reported by the Company. If exchange rates had not changed from their 1999
rates, the Company would have reported approximately $349,000 more in net
revenues for the three months ended March 31, 2000 and approximately $983,000
more in net revenues for the nine months ended March 31, 2000. Because European
manufacturing costs and European and Japanese operating expenses are also
incurred in those local currencies, the impact of exchange rates on net income
(loss) is less than on revenues.
13
<PAGE>
Cost of revenues for the three months ended March 31, 2000, were $2 million, or
20% percent of net revenues, compared to $1.6 million, or 11% percent of net
revenues, for the three months ended March 31, 1999. This increase is primarily
due to an increase in amortization of capitalized software development costs and
acquired product rights for the iGrafx products released late in fiscal year
1999. In absolute dollars and on a pro forma percent of revenue basis, the cost
of revenues are lower for the nine months ended March 31, 2000, when compared to
the results for the nine months ended March 31, 1999, primarily due to the
Company's focus on enterprise sales and is driven by several factors. In
summary, the principal factors are: (i) an increase in the average selling price
of the Company's products, (ii) a higher percentage of revenue derived from
multi-user licenses and maintenance agreements versus boxed product sales (boxed
product carries significant costs including box design and creation, manuals,
media guides, and CDs, compared to only minor costs associated with multi-user
licenses), (iii) personal creativity revenues also carry a much higher third
party royalty cost than the Company's corporate products, and (iv) amortization
related to capitalized software development costs declined as the majority of
amounts relating to old products previously capitalized became fully amortized
during fiscal 1999.
Sales and marketing expenses have declined significantly both on a quarterly and
on a year-to-date comparison because of the focus on corporate sales. The
Company has reduced its spending on variable programs aimed at the consumer
market such as mass market advertisements, and is spending in more targeted ways
such as attendance at industry trade shows and advertising in specific industry
and vertical market publications. The Company expects sales and marketing
expenses to decline as a percent of revenues through the end of the fiscal year.
General and administrative expenses for the three months ended March 31, 2000,
were $1.6 million, or 16 percent of net revenues, compared to $1.5 million, or
10 percent of net revenues, for the three months ended March 31, 1999. For the
nine months ended March 31, 2000, general and administrative expenses were $5.6
million, or 20 percent of net revenues, compared to $4.8 million, or 10 percent
of net revenues, for the nine months ended March 31, 1999. The increase in
general and administrative costs is related to the additional expenses resulting
from the acquisition of InterCAP . The Company expects general and
administrative costs to remain at current levels for the near term.
Net research and development expenses for the three months ended March 31, 2000,
were $1.9 million, or 19 percent of net revenues, compared to $1.9 million, or
13 percent of net revenues, for the quarter ended March 31, 1999. Net research
and development expenses for the nine months ended March 31, 2000, were $5.7
million, or 20 percent of net revenues, compared to $6 million, or 13 percent of
net revenues, for the nine months ended March 31, 1999. Gross research and
development expenses, before capitalization, for the three months ended March
31, 2000, were $2.6 million, or 26 percent of net revenues, compared to $3.5
million, or 24 percent of net revenues for the quarter ended March 31, 1999.
Gross research and development spending has declined as a result of the
Company's development of fewer products, all focused on corporate customers. The
Company expects research and development expenses to remain at current levels
for the near term.
During the three months ended March 31, 2000, the Company capitalized
approximately $700,000 in software development costs and amortized approximately
$600,000 in software development costs. This compares to capitalization of $1.6
million and amortization of approximately $400,000 during the three months ended
March 31, 1999. For the nine months ended March 31, 2000, the Company
capitalized $2.0 million in software development costs and amortized $1.8
million in software development costs. This compares to capitalization of $4.3
million and amortization of $3 million during the nine months ended March 31,
1999.
For the three months ended March 31, 2000, interest income decreased to
approximately $7,000 compared to approximately $197,000 for the three months
ended March 31, 1999. Interest income for the nine months ended March 31, 2000,
decreased to approximately $50,000 compared to approximately $823,000 for the
nine months ended March 31, 1999. Interest expense of approximately $142,000
resulted primarily from the convertible debenture to Intergraph from the
InterCAP acquisition. Changes in exchange rates resulted in a loss of
approximately $126,000 for the three months ended March 31, 2000 compared to a
loss of approximately $54,000 for the three months ended March 31, 1999.
Pursuant to the requirements of SFAS 109, a valuation allowance must be provided
when it is more likely than not that deferred tax assets will not be realized.
Based on the fact that the Company has a cumulative net operating loss for the
prior three years and there are no prior tax payments that could be refunded, it
is Management's belief that the realization of the deferred tax assets in the
near term is remote. Due to these circumstances, the Company did not record a
net tax benefit from the operating loss, and recorded tax expense for the
quarter due to profitable operations in Europe.
14
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LIQUIDITY AND CAPITAL RESOURCES
At March 31, 2000, the Company's principal sources of liquidity consisted of
cash and cash equivalents of $4.1 million.
For the nine months ended March 31, 2000, cash used in operating, investing and
financing activities resulted in a net decrease in cash and cash equivalents of
$4.7 million. The Company received $1.1 million as proceeds from an accounts
receivable financing facility entered into the third quarter of fiscal 2000. The
net change in cash for the nine months ended March 31, 2000 includes the $1.1
million receivable financing facility proceeds offset by a decrease resulting
from the payments of $2.5 million to Intergraph Corporation in connection with
the acquisition of InterCAP, $1.7 million of purchases of property and
equipment, and the use of $1.8 million in cash from operations. Management views
cash provided by operations less the capitalization of software development
costs to be an indicator of whether the Company is cash flow positive or
negative. For the quarter ended March 31, 2000, this calculation was positive by
approximately $200,000.
In March 2000, the Company entered into a financing agreement with Silicon
Valley Bank ("SVB") whereby SVB advances to the Company funds based on existing
domestic accounts receivable. Borrowings under this agreement on March 31, 2000,
were $1.1 million. As reported in the Company's 1999 Annual Report, Management
continues to examine various financing methods that would ensure that the
capital resources of the Company are sufficient to meet its requirements. Such
measures include the potential sale of equity securities in one or more private
transactions, the sale or spin-off of certain assets to third parties, asset
based lending, and/or factoring of international accounts receivable. The
failure of the Company to acquire additional external financing could result in
severe operational difficulties. Such difficulties could result in a reduction
in workforce, a reduction in the scope of operations, or ultimately in a forced
reorganization or bankruptcy. Management believes it will be successful in
obtaining the necessary revenue levels and/or additional funding necessary to
operate the Company in the near term, however, there can be no assurance that
under its current conditions, external funds will be available or, if available,
will not potentially dilute shareholders' interests or returns.
EURO CONVERSION
The Company is addressing issues regarding the European Economic Monetary
Union's ("EMU") single eurocurrency (the "Euro") and is currently able to
transact business using this currency. The Company intends to convert the
appropriate European ledgers to the Euro after fiscal year ended June 30, 2001,
and anticipates no material costs associated with this conversion.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Staff of the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in
Financial Statements". SAB 101 summarizes some of the staff's interpretations of
the application of generally accepted accounting principles (GAAP) to revenue
recognition. Application of the accounting and disclosure requirements of SAB
101 is not expected to have a material impact on the financial position or the
results of operations of the Company.
YEAR 2000 COSTS
The Company addressed a broad range of issues associated with the programming
code in existing computer systems as the Year 2000 approached. The Company has
not experienced any significant business interruptions as a result of the Year
2000 issue, nor has any supplier or customer of the Company made them aware of
any significant disruptions as of the date of this report. The Company will
continue to monitor its computer systems and implement such further responsive
measures as it deems necessary. The Company believes any possible occurrences
that may develop are likely to be minor and inexpensive to correct.
15
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IMAGE2WEB
In November 1999, the Company created and incorporated a wholly-owned subsidiary
named Image2Web, Inc. ("Image2Web"). Image2Web has been developing application
software intended for use in electronic commerce. Image2Web expects to announce
its product, key customer wins, and additions to its management team in the
quarter ending June 30, 2000. The Company has hired an investment banking firm
in order to secure an equity investor for Image2Web to meet its anticipated
capital needs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended March 31, 1999, the Company did not experience any material
changes in market risk exposures that affect the quantitative and qualitative
disclosures presented in the Company's 1999 Annual Report on Form 10-K.
16
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, Micrografx has filed litigation in the federal district
court for the Northern District of Texas, asking for declaratory relief that an
at-will interim letter agreement between THINK New Ideas, Inc. ("THINK") and
Micrografx may be terminated by Micrografx as of May 3, 1999, without additional
payment to THINK. THINK filed its counterclaim, alleging that the agreement
could be terminated only with ninety days notice, and not without the payment of
an additional amount of compensation in the amount of $889,000, which THINK
alleges Micrografx promised to pay under agreement with THINK. Micrografx
disputes the notice period for termination and that any additional money is
owed, beyond an agreed monthly retainer of $83,000, which was paid to THINK
until the termination of the interim agreement. THINK also filed a complaint in
federal court in Los Angeles making the same allegations it asserted in its
counterclaim in the Dallas action. THINK also filed in the Dallas court a motion
to transfer the Dallas lawsuit to Los Angeles on the grounds Los Angeles is a
more convenient forum. THINK's motion to transfer the Dallas lawsuit was
granted, and the Dallas lawsuit has been transferred to Los Angeles federal
court. Interrogatories and document requests were answered by both parties in
March 2000. Depositions will likely be conducted during April and May 2000.
Management believes the likely trial date will be in 2001.
The Company is also subject to certain legal proceedings and claims that arise
in the ordinary course of business. In the opinion of management, the resolution
of these legal proceedings and claims will not have a material effect on the
Company's consolidated financial position and results of operations.
17
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Accounts Receivable financing agreement between Silicon Valley Bank,
Specialty Finance Division and Micrografx, Inc. dated March 31, 2000.
27 The Financial Data Schedule required by Item 601(b)(27) of Regulation
S-K has been included with the electronic filing of this Form 10-Q.
(b) Reports on Form 8-K - None
18
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MICROGRAFX, INC.
Date: May 12, 2000 By: /S/ JOHN M. CARRADINE
---------------------
John M. Carradine
Chief Financial Officer
and Treasurer
19
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INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
10.1 Accounts Receivable Financing Agreement between Silicon Valley Bank,
Specialty Finance Division and Micrografx, Inc. dated March 31, 2000.
27 The Financial Data Schedule required by Item 601(b)(27) of Regulation
S-K has been included with the electronic filing of this Form 10-Q.
20
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EXHIBIT 10.1
[GRAPHIC OMITTED][GRAPHIC OMITTED]
SILICON VALLEY BANK
SPECIALTY FINANCE DIVISION
ACCOUNTS RECEIVABLE FINANCING AGREEMENT
This ACCOUNTS RECEIVABLE FINANCING AGREEMENT (the "Agreement"), dated as of
MARCH 21, 2000 is between Silicon Valley Bank, Specialty Finance Division of
("Bank"), and MICROGRAFX, INC., a Texas corporation, whose address is 505
Millennium Drive, Allen, Texas 75013 and with a FAX number of (214) 495-4053,
MICROGRAFX INTERACTIVE, INC., a Delaware corporation, whose address is 505
Millennium Drive, Allen, Texas 75013 and with a FAX number of (214) 495-4053 and
INTERCAP GRAPHICS SYSTEMS, INC., a Delaware corporation, whose address is 116
Defense Highway, Annapolis, Maryland 21401 and with a FAX number of (301)
261-8358. MICROGRAFX, INC., MICROGRAFX INTERACTIVE, INC., and INTERCAP GRAPHICS
SYSTEMS, INC. are jointly and severally referred to herein as "Borrower").
1. DEFINITIONS. In this Agreement:
-----------
"ACCOUNT DEBTOR" is defined in the California and Texas Uniform
Commercial Code and shall include any person liable on any Financed Receivable,
such as, a guarantor of the Financed Receivable and any issuer of a letter of
credit or banker's acceptance.
"ACCOUNTS" are all existing and later arising accounts, contract rights,
and other obligations owed Borrower in connection with its sale or lease of
goods (including licensing software and other technology) or provision of
services, all credit insurance, guaranties, other security and all merchandise
returned or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"ADJUSTMENTS" are all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments, asserted by or on behalf of any Account
Debtor for any Financed Receivable.
"ADVANCE" is defined in Section 2.2.
"ADVANCE RATE" is 80% with respect to receivables that Bank finances
where the Account Debtor is an OEM or end user, net of deferred revenue and
offsets related to each specific Account Debtor. Notwithstanding the foregoing,
Bank will not net out deferred at Bank's discretion. The Advance Rate with
respect to receivables the Bank finances where the Account Debtor is a
Distributor or Reseller is to be determined by the Bank at the time of each
Advance, subject to Bank's review of Borrower's sell through reports..
"APPLICABLE RATE" is a rate per annum equal to the "Prime Rate" plus
3.00 percentage points.
"BORROWER'S BOOKS" are all of Debtor's books, records, data, plans,
manuals, computer software, computer tapes, computer systems, computer disks,
computer programs, source codes and object codes containing any information,
pertaining directly or indirectly to any of the Collateral and all rights of
Debtor to retrieve data and other information pertaining directly or indirectly
to the Collateral from third parties, whether now existing or hereafter arising.
"BUSINESS DAY" means any day when Bank is open for business, other than
Saturday, Sunday or any other day on which banks in California are not open for
business.
"CODE" is the California or Texas Uniform Commercial Code.
"COLLATERAL" consists of all of Borrower's right, title and interest in
and to goods, equipment, inventory, fixtures, accounts, chattel paper,
instruments, documents, investment property, rights to proceeds of written
letters of credit, cash, deposit accounts, intellectual property, copyright
rights, applications and registrations, trade secrets, trademarks and trade
names, and all other property described in the attached as Exhibit "A".
<PAGE>
"COLLATERAL HANDLING FEE" is defined in Section 3.4.
"COLLECTIONS" are all funds received by Bank from or on behalf of an
Account Debtor for Financed Receivables.
"COMPLIANCE CERTIFICATE" is attached as Exhibit "B".
"EVENT OF DEFAULT" is defined in Section 9.
"FACILITY" is an extension of credit by Bank to Borrower in order to
finance receivables with an aggregate Account Balance not exceeding the Facility
Amount.
"FACILITY AMOUNT" is $3,000,000.00.
"FACILITY FEE" is defined in Section 3.3.
"FACILITY PERIOD" is the period beginning on this date and continuing
until MARCH 21, 2001, unless the period is terminated sooner by Bank with notice
to Borrower or by Borrower under Section 3.5.
"FINANCE CHARGES" is defined in Section 3.2.
"FINANCED RECEIVABLES" is accounts, receivables, chattel paper,
instruments, contract rights, documents, general intangibles, letters of credit,
drafts, bankers acceptances, and rights to payment, and all proceeds, including
their proceeds (collectively "receivables"), which Bank finances and makes an
Advance with respect to. A Financed Receivable stops being a Financed Receivable
(but remains Collateral) when the Advance made for the Financed Receivable has
been finally paid.
"FINANCED RECEIVABLE BALANCE" is the total outstanding amount, at any
time, of all Financed Receivables.
"GUARANTOR" means any guarantor of the Obligations.
"INELIGIBLE RECEIVABLE" is any accounts receivable:
(A) that is unpaid (90) calendar days after the invoice date; or
(B) that is owed by an Account Debtor that has filed, or has had filed
against it, any bankruptcy case, assignment for the benefit of
creditors, receivership, or Insolvency Proceeding or who has become
insolvent (as defined in the United States Bankruptcy Code) or who is
generally not paying its debts as they become due; or
(C) for which there has been any breach of warranty or representation in
Section 6 or any breach of any covenant in this Agreement; or
(D) for which the Account Debtor asserts any discount, allowance, return,
dispute, counterclaim, offset, defense, right of recoupment, right of
return, warranty claim, or short payment.
"INSOLVENCY PROCEEDING" are proceedings by or against any person under the
United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
"INVOICE TRANSMITTAL" shows accounts receivables which Bank may finance
and, for each receivable, includes the Account Debtor's, name, address, invoice
amount, invoice date and invoice number and is signed by Borrower's authorized
representative.
"LOCKBOX" is described in Section 6.2.
"MINIMUM AMOUNT" is the minimum intended use of the Facility, which is
$10,000.00.
"OBLIGATIONS" are all advances, liabilities, obligations, covenants and
duties owing, arising, due or payable by Borrower to Bank now or hereinafter
arising under this Agreement or
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any other document, instrument or agreement, account (including those
acquired by assignment) primary or secondary, such as all Advances, Finance
Charges, Administrative Fees, interest, fees, expenses, professional fees and
attorneys' fees or other.
"PREPAYMENT FEE" is defined is Section 3.5.
"PRIME RATE" is Bank's most recently announced "prime rate," even if it is
not Bank's lowest rate.
"RECONCILIATION DATE" is the last day of each Reconciliation Period.
"RECONCILIATION PERIOD" is each calendar month.
2. FINANCING OF ACCOUNTS RECEIVABLE.
--------------------------------
2.1. REQUEST FOR ADVANCES. During the Facility Period, Borrower may offer
accounts receivable to Bank, if there is not an Event of Default.
Borrower will deliver an Invoice Transmittal for each accounts
receivable it offers. Bank may rely on information on or with the
Invoice Transmittal.
2.2. ACCEPTANCE OF ACCOUNTS RECEIVABLE. Bank is not obligated to finance
any accounts receivable. Bank may approve any Account Debtor's credit
before buying any receivable. When Bank accepts a receivable, it will
pay Borrower the Advance Rate times the face amount of the receivable
(the "Advance"). Bank may, in its sole discretion, change the
percentage of the Advance Rate. When Bank makes an Advance, the
receivable becomes a "Financed Receivable." All representations and
warranties in Section 6 must be true as of the date of the Invoice
Transmittal and of the Advance, and no Event of Default shall exist,
or would occur as a result of the Advance. The aggregate amount of all
Financed Receivables outstanding at any time may not exceed the
Facility Amount.
3. COLLECTIONS, FINANCE CHARGES, REMITTANCES AND FEES.
--------------------------------------------------
The Obligations shall be subject to the following fees and Finance Charges.
Fees and Finance Charges may, in Bank's sole discretion, be charged as an
Advance, and shall thereafter accrue fees and Finance Charges as described
below. Bank may, in its sole discretion, charge fee and Finance Charges to
Borrower's deposit account maintained with Bank.
3.1. COLLECTIONS. Collections will be credited to the Financed Receivables
Balance, but if there is an Event of Default, Bank may apply
Collections to the Obligation in any order it chooses. If Bank
receives a payment for both Financed Receivable and a non Financed
Receivable, the funds will first be applied to the Financed Receivable
and, if there is not an Event of Default, the excess will be remitted
to the Borrower, subject to Section 3.8.
3.2. FINANCE CHARGES. In computing Finance Charges on the Obligations, all
checks and other items of payment received by Bank (including proceeds
of Financed Receivables and payment of Obligations in full) shall be
deemed applied by Bank on account of the Obligations THREE (3)
BUSINESS DAYS after receipt by Bank of immediately available funds.
Borrower will pay a finance charge (the "Finance Charge") on each
Reconciliation Date. Which is the greater of (i) the Applicable Rate
times the number of days in the Reconciliation Period times the
outstanding average daily Financed Receivable Balance for that
Reconciliation Period or (ii) the Minimum Amount.
3.3. FACILITY FEE. A fully earned, non-refundable facility fee of
$15,000.00 is due on execution of this Agreement.
3.4. COLLATERAL HANDLING FEE. Borrower will pay to Bank a collateral
handling fee each Reconciliation Date equal to .375% per month of the
average daily Financed Receivable Balance outstanding during the
applicable Reconciliation Period
3.5. PREPAYMENT FEE. If Borrower prepays the Obligations and terminates the
Facility within six months from the date of this Agreement, a fully
earned, non-refundable prepayment fee of $30,000.00 is due on
voluntary or involuntary full payment of the Obligations unless the
Obligations are paid in full from an initial advance from a loan
arrangement with Bank.
3.6. ACCOUNTING. After each Reconciliation Period, Bank will send an
accounting of the transactions for that Reconciliation Period,
including the amount of all Financed Receivables, all Collections,
Adjustments, Finance Charges, the Collateral Handling Fee and the
Administrative Fee. If Borrower does not object to the accounting in
writing within
3
<PAGE>
30 days it is considered correct. All Finance Charges
and other interest and fees calculated on the basis of a 360 day year
and actual days elapsed.
3.7. DEDUCTIONS. Bank may deduct fees, finance charges and other amounts
due from any Advances made or Collections received by Bank.
3.8 ACCOUNT COLLECTION SERVICES. Certain Account Debtors may require that
all Borrower's receivables be paid to the same address/or party and
Borrower and Bank may agree. If Bank collects all receivables and
there is not an Event of Default or an event that with notice or lapse
of time will be an Event of Default, within THREE (3) BUSINESS DAYS of
receipt of those collections, Bank will give Borrower the receivables
collections it receives for receivables other than Financed
Receivables and/or amounts in excess of the amount for which Bank has
made an Advance to Borrower, less any amount due to Bank, such as
Finance Charges, expenses or otherwise. This Section does not impose
any affirmative duty on Bank to do any act other than to turn over
amounts. All receivables and collections are Collateral and if an
Event of Default occurs, Bank need not remit collections of Collateral
and may apply them to the Obligations.
4. REPAYMENT OF OBLIGATIONS.
------------------------
4.1. REPAYMENT ON MATURITY. Borrower will repay each Advance on the
earliest of: (a) payment of the Financed Receivable in respect to
which the Advance was made, (b) the Financed Receivable becomes an
Ineligible Receivable, (c) when any Adjustment is made to the Financed
Receivable (but only to the extent of the Adjustment if the Financed
Receivable is not otherwise an Ineligible Receivable and (d) the last
day of the Facility Period (including any early termination). Each
payment will also include all accrued Finance Charges on the Advance.
4.2. REPAYMENT ON EVENT OF DEFAULT. When there is an Event of Default,
Borrower will, if Bank demands (or, in an Event of Default under
Section 9(B), immediately without notice or demand from Bank) repay
all of the Advances. The demand may, at Bank's option, include the
Advance for each Financed Receivable then outstanding and all accrued
Finance Charges, Collateral Handling Fees, attorneys and professional
fees, court costs and expenses, and any other Obligations.
5. POWER OF ATTORNEY.
-----------------
Borrower irrevocably appoints Bank and its successors and assigns it
attorney-in-fact and authorizes Bank, regardless of whether there has been an
Event of Default, to:
(A) sell, assign, transfer, pledge, compromise, or discharge all or any
part of the Financed Receivables:
(B) demand, collect, sue, and give releases to any Account Debtor for
monies due and compromise, prosecute, or defend any action, claim, case
or proceeding about the Financed Receivables, including filing a claim
or voting a claim in any bankruptcy case in Bank's or Borrower's name,
as Bank chooses:
(C) prepare, file and sign Borrower's name on any notice, claim,
assignment, demand, draft, or notice of or satisfaction of lien or
mechanics' lien or similar document;
(D) notify all Account Debtors to pay Bank directly;
(E) receive, open, and dispose of mail addressed to Borrower;
(F) endorse Borrower's name on check or other instruments;
(G) execute on Borrower's behalf any instruments, documents, financing
statements to perfect Bank's interests in the Financed Receivables and
Collateral; and
(H) do all acts and things necessary or expedient.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
-----------------------------------------
6.1.REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants for
each Financed Receivable:
(A) It is the owner with legal right to sell, transfer and assign it;
4
<PAGE>
(B) The correct amount is on the Invoice Transmittal and is not disputed;
(C) Payment is not contingent on any obligation or contract and it has
fulfilled all its obligations as of the Invoice Transmittal date;
(D) It is based on an actual sale and delivery of goods and/or services
rendered, due to Borrower, it is not past due or in default, has
not been previously sold, assigned, transferred, or pledged and is
free of any liens, security interests and encumbrances;
(E) There are no asserted or known defenses, offsets, counterclaims or
agreements for which the Account Debtor has claimed or may claim
any deduction or discount;
(F) It reasonably believes no Account Debtor is insolvent or subject to
any Insolvency Proceedings;
(G) There are no actions or proceedings pending by or against Borrower
before any court or administrative agency in which an adverse
decision could have a material adverse effect on Borrower or the
Collateral. Borrower does not have knowledge of any such pending or
threatened actions or proceedings. Borrower will promptly notify
Bank in writing if any action, proceeding or governmental
investigation, involving Borrower is commenced that may result in
damages or costs to Borrower of Ten Thousand Dollars ($10,000) or
more.
(H) Bank has the right to endorse and/ or require Borrower to endorse
all payments received on Financed Receivables and all proceeds of
Collateral.
(I) No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statement contained in the certificates or
statement not misleading.
6.1.1 ADDITIONAL REPRESENTATION AND WARRANTIES. Borrower represents and
warrants as follows:
(A) Borrower is duly existing and in good standing in its state of
formation and qualified and licensed to do business in, and in
good standing in, any state in which the conduct of its business
or its ownership of property requires that it be qualified. The
execution, delivery and performance of this Agreement has been
duly authorized, and do not conflict with Borrower's formations
documents, nor constitute an Event of Default under any material
agreement by which Borrower is bound. Borrower is not in default
under any agreement to which or by which it is bound.
(B) Borrower has good title to the Collateral. All inventory is in all
material respects of good and marketable quality, free from
material defects.
(C) Borrower is not an "investment company" or a company "controlled" by
an "investment company" under the Investment Company Act. Borrower is
not engaged as one of its important activities in extending credit for
margin stock (under Regulations T and U of the Federal Reserve Board
of Governors). Borrower has complied with the Federal Fair Labor
Standards Act. Borrower has not violated any laws, ordinances or
rules. None of Borrower's properties or assets has been used by
Borrower, to the best of Borrower's knowledge, by previous persons, in
disposing, producing, storing, treating, or transporting any hazardous
substance other than legally. Borrower has timely filed all required
tax returns and paid, or made adequate provision to pay, all taxes.
Borrower has obtained all consents, approvals and authorizations of,
made all declarations or filings with, and given all notices to, all
government authorities that are necessary to continue its business as
currently conducted.
6.2.AFFIRMATIVE COVENANTS. Borrower will do all of the following:
(A) Maintain its corporate existence and good standing in its
jurisdictions of incorporation and maintain its qualification in
each jurisdiction necessary to Borrower's business or operations.
(B) Give Bank at least 10 days prior written notice of changes to its
name, organization, chief executive office or location of records.
5
<PAGE>
(C) Pay all its taxes including gross payroll, withholding and sales
taxes when due and will deliver satisfactory evidence of payment if
requested, provided that Borrower need not make any payment if the
amount or validity of the payment is contested in good faith by
appropriate proceedings and is reserved against (to the extent
required by GAAP) by Borrower.
(D) Upon Bank's request, provide a written report setting forth each
Payment of any Financed Receivable that does not occur by its Due
Date and the reasons for the delay. The written report shall be
delivered to Bank within 5 calendar days of Bank's request.
(E) Give Bank copies of all Forms 10-K, 10-Q and 8-K (or equivalents)
within 5 days of filing with the Securities and Exchange
Commission, while any Financed Receivable is outstanding.
(F) Provide Bank with, as soon as available, but in no event later than
thirty (30) calendar days following each Reconciliation Period, a
company prepared balance sheet and income statement, prepared under
GAAP, consistently applied, covering Borrower's operations during
the period together with an aged listing of accounts receivable and
accounts payable.
(G) Execute any further instruments and take further action as Bank
requests to perfect or continue Bank's security interest in the
Collateral or to effect the purposes of this Agreement.
(H) Provide Bank with a Compliance Certificate no later than 5 calendar
days following each quarter end or as requested by Bank.
(I) Immediately notify, transfer and deliver to Bank all collections
Borrower receives for Financed Receivables.
(J) Direct each Account Debtor to make Payments to a lockbox account with
Bank or to wire transfer Payments to Bank.
(K) Borrower will allow Bank to audit Borrower's Accounts at Borrower's
expense no later than 90 days of the execution of this Agreement and
semi-annually thereafter.
(L) Provide Bank with a sell through and deferred revenue report upon
request.
6.3 NEGATIVE COVENANTS. Borrower will not do any of the following without
Bank's prior written consent:
(A) Assign, transfer, sell or grant, or permit any lien or security
interest in the Collateral that will prime, impair or compromise
any or all of Bank's rights, title and interest in and to any of
the Collateral.
(B) Convey, sell, lease, transfer or otherwise dispose of the Collateral,
except in the ordinary course of its business.
(C) Create, incur, assume, or otherwise become liable, either directly
or indirectly, for any indebtedness, except for (i) indebtedness
owed to Bank, (ii) normal trade debts incurred in the ordinary
course of its business and (iii) the Subordinated Convertible
Debenture granted by Micrografx, Inc to Intergraph Corporation on
or about April 16, 1999.
(D) Become an "investment company" or a company controlled by an
"investment company," under the Investment Company Act of 1940 or
undertake as one of its important activities extending credit to
purchase or carry margin stock, or use the proceeds of any Advance
for that purpose; fail to meet the minimum funding requirements of
ERISA, permit a Reportable Event or Prohibited Transaction, as
defined in ERISA, to occur; fail to comply with the Federal Fair
Labor Standards Act or violate any other law or regulation, or
permit any of its subsidiaries to do so.
7. ADJUSTMENTS.
-----------
If any Account Debtor asserts a discount, allowance, return, offset,
defense, warranty claim, or the like (an "Adjustment") or if Borrower breaches
any of the representations, warranties or covenants set forth in Section 6.,
Borrower will promptly advise Bank. Borrower will resell any rejected, returned,
or recovered personal property for Bank, at Borrower's expense, and pay proceeds
to Bank. While Borrower has returned goods that are
6
<PAGE>
Bank property, Borrower will segregate and mark them "property of Silicon
Valley Bank." Bank owns the Financed Receivables and until receipt of payment,
has the right to take possession of any rejected, returned, or recovered
personal property.
8. SECURITY INTEREST.
------------------
Borrower grants to Bank a continuing security interest in all presently and
later acquired Collateral. Any security interest will be a first priority
security interest in the Collateral.
9. EVENTS OF DEFAULT.
-----------------
Any one or more of the following is an Event of Default.
(A) Borrower fails to pay any amount owed to Bank when due;
(B) Borrower files or has filed against it any Insolvency Proceedings or
any assignment for the benefit of creditors, or appointment of a
receiver or custodian for any of its assets;
(C) Borrower becomes insolvent or is generally not paying its debts as
they become due or is left with unreasonably small capital;
(D) Any involuntary lien, garnishment, attachment attaches to the Financed
Receivables or any Collateral;
(E) Borrower breaches any covenant, agreement, warranty, or representation
and does not cure it to Bank's satisfaction within 10 calendar days;
but a breach that cannot be cured is an immediate Event of Default;
(F) Borrower is in default under any document, instrument or agreement
evidencing any debt, obligation or liability in favor of Bank, its
affiliates or vendors regardless of whether the debt, obligation or
liability is direct or indirect, primary or secondary, or fixed or
contingent;
(G) An event of default occurs under any Guaranty of the Obligations or any
material provision of any Guaranty is not valid or enforceable or a
Guaranty is repudiated or terminated;
(H) A material default or event of default occurs under any agreement
between Borrower and any creditor of Borrower that signed a
subordination agreement with Bank;
(I) Any creditor that has signed a subordination agreement with Bank
breaches any terms of the subordination agreement; or
(J) (i) A material impairment in the perfection or priority of the Bank's
security interest in the Collateral; (ii) a material adverse change in
the business, operations, or conditions (financial or otherwise) of the
Borrower occurs; or (iii) a material impairment of the prospect of
repayment of any portion of the Advances occurs.
10. REMEDIES.
--------
10.1.REMEDIES UPON DEFAULT. When an Event of Default occurs, (1) Bank may
stop financing receivables or extending credit to Borrower; (2) at
Banks option and on demand, all or a portion of the Obligations or,
for to an Event of Default described in Section 9(B), automatically
and without demand, are due and payable in full; (3) apply to the
Obligations any (i) balances and deposits of Borrowers it holds, or
(ii) any amount held by Bank owing to or for the credit or the account
of Borrower; and (4) Bank may exercise all rights and remedies under
this Agreement and the law, including those of a secured party under
the Code, power of attorney rights in Section 5 for the Collateral,
and the right to collect, dispose of, sell, lease, use, and realize
upon all Financed Receivables and Collateral in any commercial manner.
Borrower agrees that any notice of sale required to be given to
Borrower is if given at least five days before the sale may be held.
10.2.DEMAND WAIVER. Borrower waives demand, notice of default or dishonor,
notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement, extension, or renewal of
accounts, documents, instruments, chattel paper, and guaranties held
by Bank on which Borrower is liable.
10.3.DEFAULT RATE. If any amount is not paid when due, the amount bears
interest at the Applicable Rate plus five percent until the earlier of
(a) payment in good funds or (b) entry of a final judgment when the
principal amount of any money judgment will accrue interest at the
highest rate allowed by law.
7
<PAGE>
11. FEES, COSTS AND EXPENSES.
------------------------
The Borrower will pay on demand all fees, costs and expenses (including
attorneys' and professionals fees with costs and expenses) that Bank incurs
from: (a) preparing, negotiating, administering, and enforcing this Agreement or
related agreement, including any amendments, waivers or consents, (b) any
litigation or dispute relating to the Financed Receivables, the Collateral, this
Agreement or any other agreement, (c) enforcing any rights against Borrower or
any guarantor, or any Account Debtor, (d) protecting or enforcing its interest
in the Financed Receivables or other Collateral, (e) collecting the Financed
Receivables and the Obligations, and (f) any bankruptcy case or insolvency
proceeding involving Borrower, any Financed Receivable, the Collateral, any
Account Debtor, or any Guarantor.
12. CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER.
------------------------------------------
12.1.CHOICE OF LAW, CHOICE OF VENUE. This Agreement shall be governed by,
and construes in accordance with, the internal laws of the State of
California, without regard to principles of conflicts of law. Borrower
accepts for itself and in connection with its properties,
unconditionally, the exclusive jurisdiction of Santa Clara County,
State of California in any action, suit, or proceeding of any kind
against it which arises out of or by reason of this Agreement.
Borrower acknowledges that this Agreement has been applied for and
accepted in the State of California. Additionally, Borrower
acknowledges that any and all Advances hereunder shall be made from
the Bank's offices in California and any and all payments to be made
by Borrower hereunder shall be delivered to Bank's offices in
California.
/S/JMC BORROWER'S INITIALS
------
12.2.JURY TRIAL WAIVER.
BORROWER AND BANK EACH WAIVE THEIR ESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF ANY OF THIS
AGREEMENT OR ANY CONTEMPLATED TRANSACTIONS. EACH PARTY RECOGNIZES THAT
THIS WAIVER IS A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS
AGREEMENT. EACH PARTY REPRESENTS THAT IT HAS REVIEWED THIS WAIVER WITH
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES IT JURY TRAIL
RIGHTS.
/S/JMC BORROWER'S INITIALS
------
12.3.COUNTER SIGNATURE. This Agreement shall become effective only when it
shall have been executed by Borrower and Bank (provided, however, in
no event shall this Agreement become effective until signed by an
officer of Bank in California).
13. NOTICES.
-------
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Bank, as the case may be, at its addresses
set forth below:
If to Borrower MICROGRAFX, INC.
505 Millennium Drive
Allen, TX 75013
Attn: Chief Financial Officer
FAX: (214) 495-4053
and to MICROGRAFX INTERACTIVE, INC.
505 Millennium Drive
Allen, TX 75013
Attn: Chief Financial Officer
FAX: (214) 495-4053
and to INTERCAP GRAPHICS SYSTEMS, INC.
116 Defense Highway
Annapolis, MD 21401
Attn: Chief Financial Officer
FAX: (301) 261-8358
8
<PAGE>
If to Bank Silicon Valley Bank
3003 Tasman Drive
Santa Clara, CA 95054-1191
Attn: Credit Manager
FAX: (408) 980-6410
14. SUBROGATION AND SIMILAR RIGHTS.
------------------------------
Notwithstanding any other provision of this Agreement or any other Loan
Document, each Borrower irrevocably waives all rights that it may have at law or
in equity (including, without limitation, any law subrogating the Borrower to
the rights of Bank under the Loan Documents) to seek contribution,
indemnification, or any other form of reimbursement from any other Borrower, or
any other Person now or hereafter primarily or secondarily liable for any of the
Obligations, for any payment made by the Borrower with respect to the
Obligations in connection with the Loan Documents or otherwise and all rights
that it might have to benefit from, or to participate in, any security for the
Obligations as a result of any payment made by the Borrower with respect to the
Obligations in connection with the Loan Documents or otherwise. Any agreement
providing for indemnification, reimbursement or any other arrangement prohibited
under this Section shall be null and void. If any payment is made to a Borrower
in contravention of this Section, such Borrower shall hold such payment in trust
for Bank and such payment shall be promptly delivered to Bank for application to
the Obligations, whether matured or unmatured.
15. WAIVERS OF NOTICE.
-----------------
Each Borrower waives notice of acceptance hereof; notice of the existence,
creation or acquisition of any of the Obligations; notice of an Event of
Default; notice of the amount of the Obligations outstanding at any time; notice
of intent to accelerate; notice of acceleration; notice of any adverse change in
the financial condition of any other Borrower or of any other fact that might
increase the Borrower's risk; presentment for payment; demand; protest and
notice thereof as to any instrument; default; and all other notices and demands
to which the Borrower would otherwise be entitled. Each Borrower waives any
defense arising from any defense of any other Borrower, or by reason of the
cessation from any cause whatsoever of the liability of any other Borrower.
Bank's failure at any time to require strict performance by any Borrower of any
provision of the Loan Documents shall not waive, alter or diminish any right of
Bank thereafter to demand strict compliance and performance therewith. Nothing
contained herein shall prevent Bank from foreclosing on the Lien of any deed of
trust, mortgage or other security instrument, or exercising any rights available
thereunder, and the exercise of any such rights shall not constitute a legal or
equitable discharge of any Borrower. Each Borrower also waives any defense
arising from any act or omission of Bank that changes the scope of the
Borrower's risks hereunder. Each Borrower hereby waives any right to assert
against Bank any defense (legal or equitable), setoff, counterclaim, or claims
that such Borrower individually may now or hereafter have against another
Borrower or any other Person liable to Borrower with respect to the Obligations
in any manner or whatsoever.
16. SUBROGATION DEFENSES.
--------------------
Each Borrower hereby waives any defense based on impairment or destruction
of its subrogation or other rights against any other Borrower and waives all
benefits which might otherwise be available to it under California Civil Code
Sections 2809, 2810, 2819, 2839, 2845, 2848, 2850, 2899 and 3433 and California
Code of Civil Procedure Sections 580a, 580b, 580d and 726, as those statutory
provisions are now in effect and hereafter amended, and under any other similar
statutes now and hereafter in effect.
17. RIGHT TO SETTLE, RELEASE.
------------------------
The liability of Borrowers hereunder shall not be diminished by (i) any
agreement, understanding or representation that any of the Obligations is or was
to be guaranteed by another Person or secured by other property, or (ii) any
release or unenforceability, whether partial or total, or rights, if any, which
Borrower may now or hereafter have against any other Person, including another
Borrower, or property with respect to any of the Obligations.
Without notice to any Borrower and without affecting the liability of
any Borrower hereunder, Bank may (i) compromise, settle, renew, extend the time
for payment, change the manner or terms of payment, discharge the performance
of, decline to enforce, or release all or any of the Obligations with respect to
a Borrower, (ii) grant other indulgences to a Borrower in respect of the
Obligations, (iii) modify in any manner any documents, relating to the
Obligations with respect to a Borrower, (iv) release, surrender or exchange any
deposits or other property securing the Obligations, whether pledged by a
Borrower or any other Person, or (v) compromise, settle renew, or extend the
time for payment, discharge the performance of, decline to enforce, or release
all or any obligations of any guarantor, endorser or other Person who is now or
may hereafter be liable with respect to any of the Obligations.
9
<PAGE>
18. LIMITED RIGHT TO SALE OF IMAGE2WEB STOCK.
----------------------------------------
Pursuant to this Agreement,
Borrower is granting and pledging to Bank, inter alia, a first priority security
interest and lien against all assets, intellectual property, and stock relating
to Image2Web, Inc. (hereinafter "Image2Web"), a wholly-owned subsidiary of
Borrower. Notwithstanding the foregoing, Bank agrees that Borrower may sell up
to thirty percent (30%) of the fully diluted capital stock of Image2Web to third
party investors that infuses cash to cover Image2Web's capital needs. No other
sales of Image2Web stock shall take place without prior written approval of
Bank.
19. GENERAL PROVISIONS.
------------------
19.1.SUCCESSORS AND ASSIGNS. This Agreement binds and is for the benefit
of successors and permitted assigns of each party. Borrower may not
assign this Agreement or any rights under it without Bank's prior
written consent which may be granted or withheld in Bank's discretion.
Bank may, without the consent of or notice to Borrower, sell,
transfer, or grant participation in any part of Bank's obligations,
rights or benefits under this Agreement.
19.2.INDEMNIFICATION. Borrower will indemnify, defend and hold harmless
Bank and its officers, employees, and agents against: (a) obligations,
demands, claims, and liabilities asserted by any other party in
connection with the transactions contemplated by this Agreement; and
(b) losses or expenses incurred, or paid by Borrower from or
consequential to transactions between Bank and Borrower (including
reasonable attorneys fees and expenses), except for losses caused by
Bank's gross negligence or willful misconduct.
19.3.TIME OF ESSENCE. Time is of the essence for performance of all
obligations in this Agreement.
19.4.SEVERABILITY OF PROVISION. Each provision of this Agreement is
severable from every other provision in determining the enforceability
of any provision.
19.5.AMENDMENTS IN WRITING, INTEGRATION. All amendments to this Agreement
must be in writing and executed by all parties hereto. This Agreement
is the entire agreement about this subject matter and supersedes prior
negotiations or agreements.
19.6.COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts and
when executed and delivered are one Agreement.
19.7.SURVIVAL. All covenants, representations and warranties made in this
Agreement continue in force while any Financed Receivable amount
remains outstanding. Borrower's indemnification obligations survive
until all statutes of limitations for actions that may be brought
against Bank have run.
19.8.CONFIDENTIALITY. Bank will use the same degree of care handling
Borrower's confidential information that it uses for its own
confidential information, but may disclose information; (i) to its
subsidiaries or affiliates in connection with their business with
Borrower, (ii) to prospective transferees or purchasers of any
interest in the Agreement, (iii) as required by law, regulation,
subpoena, or other order, (iv) as required in connection with an
examination or audit and (v) as it considers appropriate exercising
the remedies under this Agreement. Confidential information does not
include information that is either: (a) in the public domain or in
Bank's possession when disclosed, or becomes part of the public domain
after disclosure to Bank; or (b) disclosed to Bank by a third party,
if Bank does not know that the third party is prohibited from
disclosing the information.
19.9.OTHER AGREEMENTS. This Agreement may not adversely affect Banks
rights under any other document or agreement. If there is a conflict
between this Agreement and any agreement between Borrower and Bank,
Bank may determine in its sole discretion which provision applies.
Borrower acknowledges that any security agreements, liens and/or
security interests securing payment of Borrower's Obligations also
secure Borrower's Obligations under this Agreement and are not
adversely affected by this Agreement. Additionally, (a) any Collateral
under other agreements or documents between Borrower and Bank secures
Borrowers Obligations under this Agreement and (b) a default by
Borrower under this Agreement is a default under agreements between
Borrower and Bank.
10
<PAGE>
BORROWER: MICROGRAFX, INC.
By: /S/JOHN M. CARRADINE
--------------------
Title: VICE PRESIDENT
--------------
BORROWER: MICROGRAFX, INTERACTIVE, INC.
By: /S/JOHN M. CARRADINE
--------------------
Title: VICE PRESIDENT
--------------
BORROWER: INTERCAP GRAPHICS SYTEMS, INC.
By: /S/ JOHN M. CARRADINE
---------------------
Title: VICE PRESIDENT
--------------
BANK: SILICON VALLEY BANK
By: /S/MIKE FIELD
-------------
Title: SENIOR VICE PRESIDENT
---------------------
Executed in Santa Clara County, California
11
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest in
and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing;
All the stock of Image2Web, Inc. now owned or hereafter acquired by
Borrower together with all dividends, stock dividends, stock splits,
distributions, rights, proceeds, and any other property receivable or otherwise
distributable in respect of, or in exchange for, or in substitution of any and
all such stock.
All Borrower's books, records, data, plans, manuals, computer software,
computer tapes, computer systems, computer disks, computer programs, source
codes and object codes containing any information, pertaining directly or
indirectly to any of the Collateral and all rights of Debtor to retrieve data
and other information pertaining directly or indirectly to the Collateral from
third parties, whether now existing or hereafter arising. and any and all
claims, rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not include
Micrografx, Inc.'s interest in the stock of InterCAP Graphics Systems, Inc. now
owned or hereafter acquired by Borrower or the dividends, stock dividends, stock
splits, distributions, rights, and proceeds, or other property distributable in
exchange for, or in substitution of any and all of capital stock of InterCAP
Graphics Systems, Inc.
<PAGE>
EXHIBIT "B"
[GRAPHIC OMITTED][GRAPHIC OMITTED]
SILICON VALLEY BANK
SPECIALTY FINANCE DIVISION
COMPLIANCE CERTIFICATE
I, as authorized officer of MICROGRAFX, INC., MICROGRAFX INTERACTIVE, INC.,
AND INTERCAP GRAPHICS SYSTEMS, INC. (collectively, "Borrower") certify under the
Accounts Receivable Financing Agreement (the "Agreement") between Borrower and
Silicon Valley Bank ("Bank") as follows.
BORROWER REPRESENTS AND WARRANTS FOR EACH FINANCED RECEIVABLE:
It is the owner with legal right to sell, transfer and assign it;
The correct amount is on the Invoice Transmittal and is not disputed;
Payment is not contingent on any obligation or contract and it
has fulfilled all its obligations as of the Invoice Transmittal date;
It is based on an actual sale and delivery of goods and/or
services rendered, due to Borrower, it is not past due or in default,
has not been previously sold, assigned, transferred, or pledged and is
free of any liens, security interests and encumbrances;
There are no known or asserted defenses, offsets, counterclaims
or agreements for which the Account Debtor may claim any deduction or
discount;
It reasonably believes no Account Debtor is insolvent or subject
to any Insolvency Proceedings;
There are no actions or proceedings pending by or against
Borrower before any court or administrative agency in which an adverse
decision could have a material adverse effect on Borrower or the
Collateral, and Borrower does not have knowledge of any such pending
or threatened actions or proceedings;
Bank has the right to endorse and/ or require Borrower to endorse
all payments received on Financed Receivables and all proceeds of
Collateral.
No representation, warranty or other statement of Borrower in any
certificate or written statement given to Bank contains any untrue
statement of a material fact or omits to state a material fact
necessary to make the statement contained in the certificates or
statement not misleading.
ADDITIONALLY, BORROWER REPRESENTS AND WARRANTS AS FOLLOWS:
Borrower is duly existing and in good standing in its state of
formation and qualified and licensed to do business in, and in good
standing in, any state in which the conduct of its business or its
ownership of property requires that it be qualified. The execution,
delivery and performance of this Agreement has been duly authorized,
and do not conflict with Borrower's formations documents, nor
constitute an Event of Default under any material agreement by which
Borrower is bound. Borrower is not in default under any agreement to
which or by which it is bound.
Borrower has good title to the Collateral. All inventory is in
all material respects of good and marketable quality, free from
material defects.
Borrower is not an "investment company" or a company "controlled"
by an "investment company" under the Investment Company Act. Borrower
is not engaged as one of its important activities in extending credit
for margin stock (under Regulations G, T and U of the Federal Reserve
Board of Governors). Borrower has complied with the Federal Fair Labor
Standards Act. Borrower has not violated any laws, ordinances or
rules. None of Borrower's properties or assets has been used by
Borrower, to the best of Borrower's knowledge, by previous persons, in
disposing, producing, storing, treating, or transporting any hazardous
substance other than legally. Borrower has timely filed all required
tax returns and paid, or made adequate provision to pay, all taxes.
Borrower has obtained all consents, approvals and authorizations of,
made all declarations or filings with, and given all notices to, all
government authorities that are necessary to continue its business as
currently conducted.
<PAGE>
All representations and warranties in the Agreement are true and
correct in all material respects on this date.
Sincerely,
BORROWER: MICROGRAFX, INC.
SIGNATURE
TITLE
DATE
BORROWER: MICROGRAFX, INTERACTIVE, INC.
SIGNATURE
TITLE
DATE
BORROWER: INTERCAP GRAPHIC SYSTEMS, INC.
SIGNATURE
TITLE
DATE
<PAGE>
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: MICROGRAFX, INC., a TEXAS corporation
Number of Shares: 25,000
------
Class of Stock: Common
Initial Exercise Price: $7.00 per share
Issue Date: MARCH 21, 2000
--------------
Expiration Date: MARCH 21, 2007
--------------
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for
other good and valuable consideration, SILICON VALLEY BANK ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of the
class of securities (the "Shares") of the corporation (the "Company") at the
initial exercise price per Share (the "Warrant Price") all as set forth above
and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions
and upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.3.
1.3 FAIR MARKET VALUE. If the Shares are traded in a public
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day immediately before Holder delivers
its Notice of Exercise to the Company. If the Shares are not traded in a public
market, the Board of Directors of the Company shall determine fair market value
in its reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a reputable
investment banking firm to undertake such valuation. If the valuation of such
investment banking firm is greater than that determined by the Board of
Directors, then all fees and expenses of such investment banking firm shall be
paid by the Company. In all other circumstances, such fees and expenses shall be
paid by Holder.
1.4 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after
Holder exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the
<PAGE>
Shares acquired and, if this Warrant has not been fully exercised or
converted and has not expired, a new Warrant representing the Shares not so
acquired.
1.5 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, on surrender and cancellation of this Warrant,
the Company shall execute and deliver, in lieu of this Warrant, a new warrant of
like tenor.
1.6 ASSUMPTION UPON SALE, MERGER, OR CONSOLIDATION OF THE COMPANY.
-------------------------------------------------------------
1.6.1. "ACQUISITION". For the purpose of this Warrant, "Acquisition" means
any sale, license, or other disposition of all or substantially all of
the assets of the Company, or any reorganization, consolidation, or
merger of the Company where the holders of the Company's securities
before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the
transaction.
1.6.2. ASSUMPTION OF WARRANT. Upon the closing of any Acquisition the
successor entity shall assume the obligations of this Warrant, and
this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of
the unexercised portion of this Warrant as if such Shares were
outstanding on the record date for the Acquisition and subsequent
closing. The Warrant Price shall be adjusted accordingly.
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company (i) declares
or pays a dividend on its common stock (or the Shares if the Shares are
securities other than common stock) payable in common stock, or other
securities, or (ii) subdivides the outstanding common stock into a greater
amount of common stock, or, if the Shares are securities other than common
stock, subdivides the Shares in a transaction that increases the amount of
common stock into which the Shares are convertible, then upon exercise of this
Warrant, for each Share acquired, Holder shall receive, without cost to Holder,
the total number and kind of securities to which Holder would have been entitled
had Holder owned the Shares of record as of the date the dividend or subdivision
occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. Such an event shall include any automatic conversion of the
outstanding or issuable securities of the Company of the same class or series as
the Shares to common stock pursuant to the terms of the Company's Articles of
Incorporation upon the closing of a registered public offering of the Company's
common stock. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall provide
for adjustments which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Article 2 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 2.2
shall similarly apply to successive reclassifications, exchanges, substitutions,
or other events.
<PAGE>
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 ADJUSTMENTS FOR DILUTING ISSUANCES. The Warrant Price and
the number of Shares issuable upon exercise of this Warrant or, if the Shares
are Preferred Stock, the number of shares of common stock issuable upon
conversion of the Shares, shall be subject to adjustment, from time to time in
the manner set forth in the Company's Articles (Certificate) of Incorporation.
The provisions set forth for the Shares in the Company's Articles (Certificate)
of Incorporation relating to the above in effect as of the Issue Date may not be
amended, modified or waived, without the prior written consent of Holder unless
such amendment, modification or waiver effects Holder in the same manner as they
effect all other shareholders of the Shares.
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its
Articles of Incorporation or through a reorganization, transfer of assets,
consolidation, merger, dissolution, issue, or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such action as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the Company
takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional shares shall be issuable
upon exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder an amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial Officer
setting forth such adjustment and the facts upon which such adjustment is based.
The Company shall, upon written request, furnish Holder a certificate setting
forth the Warrant Price in effect upon the date thereof and the series of
adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this Warrant
is not greater than (i) the price per share at which the Shares were
last issued in an arms-length transaction in which at least $500,000
of the Shares were sold and (ii) the fair market value of the Shares
as of the date of this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized,
validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for
herein or under applicable federal and state securities laws.
(c) The Capitalization table attached hereto is true and correct.
<PAGE>
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any
time (a) to declare any dividend or distribution upon its common stock, whether
in cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of common
stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this
Warrant and/or any of the Shares, the Company shall deliver to the Holder (a)
promptly after mailing, copies of all notices or other written communications to
the shareholders of the Company, (b) within 90 days after the end of each fiscal
year of the Company, the annual audited financial statements of the Company
certified by independent public accountants of recognized standing and (c) such
other financial statements required under and in accordance with any loan
documents between Holder and the Company (or if there are no such requirements
or if the subject loan(s) no longer are outstanding), then within 45 days after
the end of each of the first three quarters of each fiscal year, the Company's
quarterly, unaudited financial statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The
Company agrees that the Shares or, if the Shares are convertible into common
stock of the Company, such common stock, shall be subject to the registration
rights set forth in the Company's Investors' Rights Agreement or similar
agreement. The provisions set forth in Company's Investors' Right Agreement or
similar agreement relating to the above in effect as of the Issue Date may not
be amended, modified or waived without the prior written consent of Holder
unless such amendment, modification or waiver effects Holder in the same manner
as they effect all other shareholders of the Shares.
ARTICLE 4. MISCELLANEOUS.
-------------
4.1 TERM. This Warrant is exercisable, in whole or in part, at any time and
from time to time on or before the Expiration Date set forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO
RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
<PAGE>
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant
and the Shares issuable upon exercise of this Warrant (and the securities
issuable, directly or indirectly, upon conversion of the Shares, if any) may not
be transferred or assigned in whole or in part without compliance with
applicable federal and state securities laws by the transferor and the
transferee (including, without limitation, the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, as reasonably requested by the Company). The Company shall not require
Holder to provide an opinion of counsel if the transfer is to an affiliate of
Holder or if there is no material question as to the availability of current
information as referenced in Rule 144(c), Holder represents that it has complied
with Rule 144(d) and (e) in reasonable detail, the selling broker represents
that it has complied with Rule 144(f), and the Company is provided with a copy
of Holder`s notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Section
4.3, Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) at any time to Silicon Valley Bancshares
or The Silicon Valley Bank Foundation, or, to any other transferee by giving the
Company notice of the portion of the Warrant being transferred setting forth the
name, address and taxpayer identification number of the transferee and
surrendering this Warrant to the Company for reissuance to the transferee(s)
(and Holder if applicable). Unless the Company is filing financial information
with the SEC pursuant to the Securities Exchange Act of 1934, the Company shall
have the right to refuse to transfer any portion of this Warrant to any person
who directly competes with the Company.
4.5 NOTICES. All notices and other communications from the
Company to the Holder, or vice versa, shall be deemed delivered and effective
when given personally or mailed by first-class registered or certified mail, at
such address as may have been furnished to the Company or the Holder, as the
case may be, in writing by the Company or such holder from time to time. All
notices to be provided under this Warrant shall be sent to the following
address:
Silicon Valley Bank
Attn: Treasury Department HG100
3003 Tasman Drive
Santa Clara, CA 95054
4.6 WAIVER. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the
parties concerning the terms and provisions of this Warrant, the party
prevailing in such dispute shall be entitled to collect from the other party all
costs incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
<PAGE>
"COMPANY"
Micrografx, Inc.
By: /S/JOHN M. CARRADINE
--------------------
Name: JOHN M. CARRADINE
-----------------
(Print)
Title: Chairman of the Board,
President or Vice President
By: /S/JOHN M. CARRADINE
--------------------
Name: JOHN M. CARRADINE
-----------------
(Print)
Title: Chief Financial Officer,
Secretary, Assistant Treasurer or
Assistant Secretary
<PAGE>
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase shares of the
Common/Preferred Series ___ [Strike one] Stock of Micrografx, Inc.
pursuant to the terms of the attached Warrant, and tenders herewith
payment of the purchase price of such shares in full.
or
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to _____________________ of the
Shares covered by the Warrant.
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified
below:
-------------------------------------------
(Name)
-------------------------------------------
-------------------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a
view toward the resale or distribution thereof except in compliance
with applicable securities laws.
------------------------------------
(Signature)
--------------------
Date)
<PAGE>
INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement (this "IP Agreement") is
made as of the 8th day of March 2000 by and between MICROGRAFX, INC.
("Grantor"), and Silicon Valley Bank, a California banking corporation ("Bank").
RECITALS
A. Bank will make credit extensions to Grantor as described in the
Accounts Receivable Financing Agreement (the "Loan Agreement"), but only if
Grantor grants Bank a security interest in its Copyrights, Trademarks, Patents,
and Mask Works. Defined terms used but not defined herein shall have the same
meanings as in the Loan Agreement.
B. Pursuant to the terms of the Loan Agreement, Grantor has granted to
Bank a security interest in all of Grantor's right title and interest, whether
presently existing or hereafter acquired in, to and under all of the Collateral.
NOW, THEREFORE, for good and valuable consideration, receipt of which
is hereby acknowledged and intending to be legally bound, as collateral security
for the prompt and complete payment when due of Grantor's Indebtedness under the
Loan Agreement, Grantor hereby represents, warrants, covenants and agrees as
follows:
1. GRANT OF SECURITY INTEREST. As collateral security for the prompt
and complete payment and performance of all of Grantor's present or future
indebtedness, Obligations and liabilities (collectively, "Indebtedness") to
Bank, Grantor hereby grants a security interest in all of Grantor's right, title
and interest in, to and under its Intellectual Property Collateral (all of which
shall collectively be called the "Intellectual Property Collateral"), including,
without limitation, the following:
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and
derivative work thereof, whether published or unpublished and whether
or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held, including without limitation
those set forth on EXHIBIT A attached hereto (collectively, the
"Copyrights");
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or
hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to Grantor now or
hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections including,
without limitation, improvements, divisions, continuations, renewals,
reissues, extensions and continuations-in-part of the same, including
without limitation the patents and patent applications set forth on
EXHIBIT B attached hereto (collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like
protections, and the entire goodwill of the business of Grantor
connected with and symbolized by such trademarks, including without
limitation those set forth on EXHIBIT C attached hereto (collectively,
the "Trademarks")
(f) All mask works or similar rights available for the protection of
semiconductor chips, now owned or hereafter acquired, including,
without limitation those set forth on EXHIBIT D attached hereto
(collectively, the "Mask Works");
(g) Any and all claims for damages by way of past, present and future
infringements of any of the rights included above, with the right, but
not the obligation, to sue for and collect such damages for said use
or infringement of the intellectual property rights identified above;
<PAGE>
(h) All licenses or other rights to use any of the Copyrights, Patents,
Trademarks, or Mask Works and all license fees and royalties arising
from such use to the extent permitted by such license or rights; and
(i) All amendments, extensions, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
(j) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty
payable in respect of any of the foregoing.
2. AUTHORIZATION AND REQUEST. Grantor authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this IP Agreement.
3. COVENANTS AND WARRANTIES. Grantor represents, warrants, covenants and
agrees as follows:
(a) Grantor is now the sole owner of the Intellectual Property Collateral,
except for non-exclusive licenses granted by Grantor to its customers
in the ordinary course of business.
(b) Performance of this IP Agreement does not conflict with or result in a
breach of any IP Agreement to which Grantor is bound, except to the
extent that certain intellectual property agreements prohibit the
assignment of the rights thereunder to a third party without the
licensor's or other party's consent and this IP Agreement constitutes
a security interest.
(c) During the term of this IP Agreement, Grantor will not transfer or
otherwise encumber any interest in the Intellectual Property
Collateral, except for non-exclusive licenses granted by Grantor in
the ordinary course of business or as set forth in this IP Agreement;
(d) To its knowledge, each of the Patents is valid and enforceable, and no
part of the Intellectual Property Collateral has been judged invalid
or unenforceable, in whole or in part, and no claim has been made that
any part of the Intellectual Property Collateral violates the rights
of any third party;
(e) Grantor shall promptly advise Bank of any material adverse change in
the composition of the Collateral, including but not limited to any
subsequent ownership right of the Grantor in or to any Trademark,
Patent, Copyright, or Mask Work specified in this IP Agreement;
(f) Grantor shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents, Copyrights, and Mask Works,
(ii) use its best efforts to detect infringements of the Trademarks,
Patents, Copyrights, and Mask Works and promptly advise Bank in
writing of material infringements detected and (iii) not allow any
Trademarks, Patents, Copyrights, or Mask Works to be abandoned,
forfeited or dedicated to the public without the written consent of
Bank, which shall not be unreasonably withheld, unless Grantor
determines that reasonable business practices suggest that abandonment
is appropriate.
(g) Grantor shall promptly register the most recent version of any of
Grantor's Copyrights, if not so already registered, and shall, from
time to time, execute and file such other instruments, and take such
further actions as Bank may reasonably request from time to time to
perfect or continue the perfection of Bank's interest in the
Intellectual Property Collateral;
(h) This IP Agreement creates, and in the case of after acquired
Intellectual Property Collateral, this IP Agreement will create at the
time Grantor first has rights in such after acquired Intellectual
Property Collateral, in favor of Bank a valid and perfected first
priority security interest in the Intellectual Property Collateral in
the United States securing the payment and performance of the
obligations evidenced by the Loan Agreement upon making the filings
referred to in clause (i) below;
(i) To its knowledge, except for, and upon, the filing with the United
States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the
Copyrights and Mask Works necessary to perfect the security interests
created hereunder and except as has been already made or obtained, no
authorization, approval or other action by, and no notice to or filing
with, any U.S. governmental authority of U.S. regulatory body is
required either (i) for the grant by
<PAGE>
Grantor of the security interest granted hereby or for the execution,
delivery or performance of this IP Agreement by Grantor in the
U.S. or (ii) for the perfection in the United States or the
exercise by Bank of its rights and remedies thereunder;
(j) All information heretofore, herein or hereafter supplied to Bank by or
on behalf of Grantor with respect to the Intellectual Property
Collateral is accurate and complete in all material respects.
(k) Grantor shall not enter into any agreement that would materially
impair or conflict with Grantor's obligations hereunder without Bank's
prior written consent, which consent shall not be unreasonably
withheld. Grantor shall not permit the inclusion in any material
contract to which it becomes a party of any provisions that could or
might in any way prevent the creation of a security interest in
Grantor's rights and interest in any property included within the
definition of the Intellectual property Collateral acquired under such
contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security
interest in such contracts.
(l) Upon any executive officer of Grantor obtaining actual knowledge
thereof, Grantor will promptly notify Bank in writing of any event
that materially adversely affects the value of any material
Intellectual Property Collateral, the ability of Grantor to dispose of
any material Intellectual Property Collateral of the rights and
remedies of Bank in relation thereto, including the levy of any legal
process against any of the Intellectual Property Collateral.
4. BANK'S RIGHTS. Bank shall have the right, but not the obligation, to
take, at Grantor's sole expense, any actions that Grantor is required under this
IP Agreement to take but which Grantor fails to take. Grantor shall reimburse
and indemnify Bank for all reasonable costs and reasonable expenses incurred in
the reasonable exercise of its rights under this section 4.
5. INSPECTION RIGHTS. Grantor hereby grants to Bank and its employees,
representatives and agents the right to visit, during reasonable hours upon
prior reasonable notice to Grantor, and any of Grantor's plants and facilities
that manufacture, install or store products (or that have done so during the
prior six-month period) that are sold utilizing any of the Intellectual Property
Collateral, and to inspect the products and quality control records relating
thereto upon reasonable written notice to Grantor and as often as may be
reasonably requested, but not more than one (1) time in every six (6) months;
provided, however, that Bank may conduct an inspection within 90-days of the
execution of this Agreement, and nothing herein shall entitle Bank access to
Grantor's trade secrets and other proprietary information.
<PAGE>
6. FURTHER ASSURANCES; ATTORNEY IN FACT.
(a) On a continuing basis, Grantor will, subject to any prior licenses,
encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and
recording places in the United States, all such instruments, including
appropriate financing and continuation statements and collateral
agreements and filings with the United States Patent and Trademarks
Office and the Register of Copyrights, and take all such action as may
reasonably be deemed necessary or advisable, or as requested by Bank,
to perfect Bank's security interest in all Copyrights, Patents,
Trademarks, and Mask Works and otherwise to carry out the intent and
purposes of this IP Agreement, or for assuring and confirming to Bank
the grant or perfection of a security interest in all Intellectual
Property Collateral.
(b) Grantor hereby irrevocably appoints Bank as Grantor's
attorney-in-fact, with full authority in the place and stead of
Grantor and in the name of Grantor, Bank or otherwise, from time to
time in Bank's discretion, upon Grantor's failure or inability to do
so, to take any action and to execute any instrument which Bank may
deem necessary or advisable to accomplish the purposes of this IP
Agreement, including:
(i) To modify, in its sole discretion, this IP Agreement without
first obtaining Grantor's approval of or signature to such
modification by amending Exhibit A, Exhibit B, Exhibit C, and Exhibit
D hereof, as appropriate, to include reference to any right, title or
interest in any Copyrights, Patents, Trademarks or Mask Works acquired
by Grantor after the execution hereof or to delete any reference to
any right, title or interest in any Copyrights, Patents, Trademarks,
or Mask Works in which Grantor no longer has or claims any right,
title or interest; and
(ii) To file, in its sole discretion, one or more financing or
continuation statements and amendments thereto, relative to any of the
Intellectual Property Collateral without the signature of Grantor
where permitted by law.
7. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default under this IP Agreement:
(a) An Event of Default occurs under the Loan Agreement; or
(b) Grantor breaches any covenant, agreement, warranty, or representation
made by Grantor in this IP Agreement, and does not cure it to Bank's
satisfaction within 10 calendar days; but a breach that cannot be
cured is an immediate Event of Default.
8. REMEDIES. Upon the occurrence and continuance of an Event of
Default, Bank shall have the right to exercise all the remedies of a secured
party under the California Uniform Commercial Code, including without limitation
the right to require Grantor to assemble the Intellectual Property Collateral
and any tangible property in which Bank has a security interest and to make it
available to Bank at a place designated by Bank. Bank shall have a nonexclusive,
royalty free license to use the Copyrights, Patents, Trademarks, and Mask Works
to the extent reasonably necessary to permit Bank to exercise its rights and
remedies upon the occurrence of an Event of Default. Grantor will pay any
expenses (including reasonable attorney's fees) incurred by Bank in connection
with the exercise of any of Bank's rights hereunder, including without
limitation any expense incurred in disposing of the Intellectual Property
Collateral. All of Bank's rights and remedies with respect to the Intellectual
Property Collateral shall be cumulative.
9. INDEMNITY. Grantor agrees to defend, indemnify and hold harmless
Bank and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this IP Agreement, and (b) all
losses or expenses in any way suffered, incurred, or paid by Bank as a result of
or in any way arising out of, following or consequential to transactions between
Bank and Grantor, whether under this IP Agreement or otherwise (including
without limitation, reasonable attorneys fees and reasonable expenses), except
for losses arising from or out of Bank's gross negligence or willful misconduct.
10. REASSIGNMENT. At such time as Grantor shall completely satisfy all
of the obligations secured hereunder, Bank shall execute and deliver to Grantor
all deed, assignments, and other instruments as may be necessary or proper to
reinvest in Grantor full title to the property assigned hereunder, subject to
any disposition thereof which may have been made by Bank pursuant hereto.
<PAGE>
11. COURSE OF DEALING. No course of dealing, nor any failure to exercise,
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
12. ATTORNEYS' FEES. If any action relating to this IP Agreement is brought
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys fees, costs and disbursements.
13. AMENDMENTS. This IP Agreement may be amended only by a written
instrument signed by both parties hereto.
14. COUNTERPARTS. This IP Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. LAW AND JURISDICTION. This IP Agreement shall be governed by and
construed in accordance with the laws of the State of California, without regard
for choice of law provisions. Grantor and Bank consent to the nonexclusive
jurisdiction of any state or federal court located in Santa Clara County,
California.
16. CONFIDENTIALITY. In handling any confidential information, Bank
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this IP
Agreement except that the disclosure of this information may be made (i) to the
affiliates of the Bank, (ii) to prospective transferee or purchasers of an
interest in the obligations secured hereby, provided that they have entered into
comparable confidentiality agreement in favor of Grantor and have deliver a copy
to Grantor, (iii) as required by law, regulation, rule or order, subpoena
judicial order or similar order and (iv) as may be required in connection with
the examination, audit or similar investigation of Bank.
IN WITNESS WHEREOF, the parties hereto have executed this IP Agreement on
the day and year first above written.
ADDRESS OF GRANTOR: GRANTOR:
505 Millennium Drive MICROGRAFX, INC.
Allen, Texas 75013
By: /S/JOHN M. CARRADINE
--------------------
Name: JOHN M. CARRADINE
-----------------
Title: CFO
---
<PAGE>
Exhibit "A" attached to that certain intellectual Property Security
Agreement Dated March 21,2000.
EXHIBIT "A"
COPYRIGHTS
<TABLE>
<CAPTION>
SCHEDULE A - ISSUED COPYRIGHTS
<S> <C> <C>
Copyright Description Registration Number Date of Issuance
--------------------- ------------------- ----------------
Card Studio Source Code TX4-321-216 08/23/96
Createacard Gold, Version 1.0 TX4-574-621 10/20/97
Createacard Gold, Version 2.0 TX4-574-620 10/20/97
Createacard Plus, Version 1.0 TX4-574-623 10/20/97
Createacard Plus, Version 2.0 TX4-574-622 10/20/97
Marta VA 916-760 04/28/98
Micrografx World Wide Web Pages TX 4248781 03/18/96
Micrografx World Wide Web Pages TX4-330-001 06/19/96
Micrografx World Wide Web Pages TX4-354-724 08/19/96
Micrografx World Wide Web Pages TX4281810 03/20/96
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE B - PENDING COPYRIGHT APPLICATIONS
<S> <C> <C> <C>
First Date
Copyright Application Date of Of Public
Description Number Filing Creation istribution
- ----------- ----------- --------------- -----------
N/A
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE C - UNREGISTERED COPYRIGHT (Where No Copyright Application is Pending)
<S> <C> <C> <C> <C>
Date and
Recordation
Number of
IP Agreement
Owner of
Grantor (if
Original Author or Original Author or
Owner of Owner of
Copyright (if Copyright is
Copyright First Date of Different from Different From
Description Date of Creation Distribution Grantor) Grantor)
- ----------- ---------------- ------------- ------------------- -------------------
N/A
</TABLE>
<PAGE>
Exhibit "B" attached to that certain Intellectual Property Security Agreement
dated March 21, 2000
<TABLE>
<CAPTION>
EXHIBIT "B"
PATENTS
<S> <C> <C> <C> <C> <C>
Patent
Description Docket No. Country Serial No. Filing Date Status
- ----------- ---------- ------- ---------- ----------- ------
System and Method for Generating 18682.0107 US 5,588,108 12/24/96 Registered
Graphics Charts
Graphics System and Method Having 18682.0105 US 5,704,028 12/30/97 Registered
Data Fields and Shape Replacement
Control
System and Method for Automatically 18682.0113 US 5,742,750 04/21/98 Registered
Inserting and Deleting an Object in
a Graphics Chart
System and Method for Generating 18682.0121 US 5,844,558 12/01/98 Registered
Graphics Charts
Executable Flowchart 18682.0124 US 5,893,105 04/06/99 Registered
System and Method for Automatically 18682.0112 US 5,943,062 08/24/99 Registered
Routing a Line in a Graphics Chart
Method and System for Producing 18682.0120 US 5,959,633 09/28/99 Registered
Graphical Images
System and Method for Generating 18682.0123 US 5,982,383 11/09/99 Registered
Graphics Charts
Graphics System and Method Having 18682.0125 US 08/763163 12/10/96 Pending
Objects Conformed to a Template
Method and System for Controlling 18682.0111 US 08/804487 02/21/97 Pending
the Conversion of a File From an
Input Format to an Output Format
System and Method of Providing 18682.0116 US 08/901043 07/28/97 Allowed
Interactive Vector Graphics Over a
Network
Executable Flowchart 18682.0151 EP 97947384.0 11/10/97 Pending
Graphics System and Method Having 18682.0152 EP 97951564.0 12/08/97 Pending
Objects Conformed to a Template
<PAGE>
System for Simulating the Depth of 18682.0135 US 09/018115 02/03/98 Pending
Field of an Image in Two Dimensional
Space and Method of Operation
System and Method for Automatically 18682.0139 US 09/063231 04/20/98 Pending
Inserting and Deleting an Object in
a Graphics Chart
Method and System for Transforming 18682.0138 US 09/195802 11/18/98 Pending
Dynamic Content for Use on the
Internet
System and Method for Determining a 18682.0149 US 09/226176 01/04/99 Pending
Path in a Graphical Diagram
System for Simulating the Depth of 18682.0141 WO PCT/US99 02/02/99 Pending
Field of an Image in Two Dimensional /02245
Space and Method of Operation
System and Method for Adjusting a 18682.0146 US 09/272756 03/19/99 Pending
Graphical Object
System and Method for Processing an 18682.0145 US 09/272928 03/19/99 Pending
Event of a Graphical Object
System and Method for Controlling 18682.0147 US 09/273170 03/19/99 Pending
the Operation of a Graphical Object
Using a Project
System and Method for Processing 18682.0148 US 09/273427 03/19/99 Pending
Data for a Graphical Object
System and Method for Image 18682.0153 US 60/136617 05/27/99 Provisional/Pending
Processing
System and Method of Providing 19682.0158 US 09/491065 01/25/00 Pending
Interactive Vector Graphics Over a
Network
</TABLE>
<PAGE>
Exhibit "C" attached to that certain Intellectual Property Security Agreement
dated March 21, 2000.
<TABLE>
<CAPTION>
EXHIBIT "C"
TRADEMARKS
<S> <C> <C> <C> <C>
Trademark
Description Country Serial No. Reg. No. Status
- ----------------------- ------------------- ---------- --------------- ---------------
Micrografx Argentina 1704031 Registered
Igrafx Australia 792469 Registered
Ishapes Australia 785622 Registered
Living Flowcharts Australia 721425 Registered
M & Design Australia A520433 Registered
M Micrografx Australia 708827 Registered
(Stylized)
Micrografx Australia A520432 Registered
Micrografx Flowcharter Australia 753061 Registered
Micrografx Graphics Australia 753062 Registered
Suite
Picture Publisher Australia 553742 Registered
Process Walker Australia 782766 Registered
M Micrografx Brazil Filed
(Stylized)
Micrografx (word) Brazil 820543934 Registered
ABC Flowcharter Benelux 594158 Registered
ABC Graphics Suite Benelux 585823 Registered
ABC Media Manager Benelux 590431 Registered
ABC Viewer Benelux 584574 Registered
Enterprisecharter Benelux Filed
Igrafx Benelux 0655749 Registered
Ishapes Benelux 0647136 Registered
Living Flowcharts Benelux 609117 Registered
M Micrografx Benelux 604275 Registered
(Stylized)
Micrografx Benelux 514057 Registered
Networkcharter Benelux Filed
Process Walker Benelux 0647107 Registered
ABC Flowcharter Canada 484500 Registered
ABC Media Manager Canada Filed
Igrafx Canada Filed
Ishapes Canada Filed
M & Design Canada TMA385129 Registered
M Micrografx Canada 493739 Registered
(Stylized)
Micrografx Canada TMA398633 Registered
Micrografx Flowcharter Canada TMA513492 Registered
Micrografx Graphics Canada TMA513494 Registered
Suite
<PAGE>
Process Walker Canada Filed
Enterprisecharter Switzerland 465128 Registered
Igrafx Switzerland 464717 Registered
Intelligent Graphics Switzerland 465077 Registered
@ Work
Ishapes Switzerland 463226 Registered
M Micrografx Switzerland 450290 Registered
(Stylized)
Networkcharter Switzerland 465129 Registered
Process Walker Switzerland 464229 Registered
M Micrografx & Design China P.R. Filed
Micrografx (word) China P.R. Filed
ABC Flowcharter Germany 39609500 Registered
ABC Graphics Suite Germany 39551351 Registered
ABC Media Manager Germany 39601978 Registered
ABC Viewer Germany 39539682 Registered
Enterprisecharter Germany Filed
Igrafx Germany 39926297 Registered
Ishapes Germany 39915010 Registered
Living Flowcharts Germany 39648778 Registered
M & Design Germany 1175329 Registered
M Micrografx Germany 39624246 Registered
(Stylized)
Micrografx Germany 1180297 Registered
Micrografx Flowcharter Germany 39751592 Registered
Micrografx Graphics Germany 39751593 Registered
Suite
Process Walker Germany 39903069 Registered
Simply 3D & Design Germany 39518864 Registered
ABC Flowcharter Denmark 04581/1997 Registered
ABC Graphics Suite Denmark VR0044/1996 Registered
ABC Media Manager Denmark 01034/1996 Registered
ABC Viewer Denmark 08205/1995 Registered
Enterprisecharter Denmark 01928/1999 Registered
Igrafx Denmark 02198/1999 Registered
Intelligent Graphics Denmark 02122/1999 Registered
@ Work
Ishapes Denmark 01935/1999 Registered
Living Flowcharts Denmark 00269/1997 Registered
M & Design Denmark 00505/1992 Registered
M Micrografx Denmark 05061/1996 Registered
(Stylized)
Micrografx Denmark 5067/1992 Registered
Networkcharter Denmark 02504/1999 Registered
<PAGE>
Process Walker Denmark 01228/1999 Registered
M Micrografx Community 677930 Registered
(Stylized) Trademark
Micrografx Community 66290 Registered
Trademark
ABC Graphics Suite Spain 2000322 Registered
Activecharts Spain Filed
Enterprisecharter Spain Filed
Igrafx Spain Filed
Ishapes Spain Filed
M & Design Spain 1527911 Registered
M Micrografx Spain 2036965 Registered
(Stylized)
M Micrografx Spain 2036972 Registered
(Stylized)
Micrografx Flowcharter Spain 2137807 Registered
Micrografx Graphics Spain 2112540 Registered
Suite
Networkcharter Spain Filed
Igrafx Finland 216481 Registered
ABC Flowcharter France 96/611465 Registered
ABC Graphics Suite France 95/600036 Registered
ABC Media Manager France 96/605229 Registered
ABC Viewer France 95590205 Registered
Activecharts France 98759947 Registered
Enterprisecharter France 99778205 Registered
Igrafx France 99791863 Registered
Intelligent Graphics France 99781279 Registered
@ Work
Ishapes France 99780017 Registered
Living Flowcharts France 96648630 Registered
M & Design France 1551748 Registered
M Micrografx France 96627023 Registered
(Stylized)
Micrografx France 1551746 Registered
Micrografx Flowcharter France 97/699399 Registered
Micrografx Graphics France 97/698413 Registered
Suite
Networkcharter France 99781600 Registered
Process Walker France 99768882 Registered
Simply 3D France 98/713900 Registered
The Future of France 94513893 Registered
Creativity
ABC Flowcharter Great Britain 2057102 Registered
ABC Graphics Suite Great Britain 2046750 Registered
ABC Media Manager Great Britain 2050320 Registered
<PAGE>
ABC Viewer Great Britain 2038953 Registered
Enterprisecharter Great Britain Filed
Igrafx Great Britain 2196379 Registered
Ishapes Great Britain 2188809 Registered
Living Flowcharts Great Britain 2114175 Registered
M Micrografx Great Britain 2100650 Registered
(Stylized)
Micrografx & Design Great Britain 1400384 Registered
Micrografx Graphics Great Britain 2148822 Registered
Suite
Networkcharter Great Britain Filed
Process Walker Great Britain 2186055 Registered
Micrografx & Design Hong Kong B14534 of 1999 Registered
Micrografx & Design Indonesia Filed
ABC Flowcharter Italy Filed
ABC Graphics Suite Italy 721252 Registered
ABC Media Manager Italy Filed
Activecharts Italy Filed
Enterprisecharter Italy Filed
Igrafx Italy Filed
Ishapes Italy Filed
Living Flowcharts Italy 759395 Registered
M & Design Italy 636735 Registered
M Micrografx Italy 757347 Registered
(Stylized)
Micrografx Italy 626112 Registered
Networkcharter Italy Filed
Process Walker Italy Filed
ABC Flowcharter Japan 3283468 Registered
ABC Snapgraphics Japan 3283467 Registered
Igrafx Japan Filed
Ishapes Japan Filed
Living Flowcharts Japan 4229216 Registered
M & Design Japan 2486726 Registered
M Micrografx Japan 4249265 Registered
(Stylized)
M Micrografx Japan 4219915 Registered
(Stylized)
Micrografx Japan 2646649 Registered
Micrografx Designer Japan 2599054 Registered
Micrografx Graphics Japan 4286549 Registered
Suite
Simply 3D & Design Japan 4327117 Registered
M Micrografx & Design South Korea 462148 Registered
<PAGE>
M Micrografx & Design Mexico 528113 Registered
Igrafx Norway 198653 Registered
M Micrografx Norway 195133 Registered
(Stylized)
Micrografx Norway 198324 Registered
M Micrografx New Zealand 286806 Registered
(Stylized)
Micrografx Flowcharter New Zealand 286807 Registered
M Micrografx & Design Philippines Filed
M Micrografx & Design Puerto Rico Filed
Activecharts Sweden Filed
Igrafx Sweden Filed
Ishapes Sweden Filed
Living Flowcharts Sweden 327114 Registered
M Micrografx Sweden 323111 Registered
(Stylized)
Micrografx Sweden 247501 Registered
Process Walker Sweden Filed
M Micrografx & Design Singapore T97/12762E Registered
M Micrografx & Design Thailand Filed
ABC Flowcharter Taiwan 782810 Registered
ABC Media Manager Taiwan 796021 Registered
Activecharts Taiwan Filed
Enterprisecharter Taiwan Filed
Igrafx Taiwan Filed
Ishapes Taiwan Filed
M Micrografx Taiwan 792762 Registered
(Stylized)
M Micrografx Taiwan 91122 Registered
(Stylized)
Micrografx Taiwan 540369 Registered
Process Walker Taiwan 892149 Filed
M Micrografx South Africa 96/14629 Registered
(Stylized)
Micrografx South Africa 96/14628 Registered
Picture Publisher US 1,527,926 Registered
Micrografx US 1,533,961 Registered
ABC Flowcharter US 1,632,984 Registered
Visual Font US 1,947,997 Registered
Visual 3D Clipart US 1,947,998 Registered
Visual Image US 1,947,999 Registered
Visual Software US 1,952,296 Registered
ABC Graphics Suite US 2,065,704 Registered
<PAGE>
M Micrografx US 2,075,195 Registered
(Stylized)
ABC Media Manager US 2,079,894 Registered
ABC Viewer US 2,024,560 Registered
Coolshapes US 2,109,619 Registered
Optima! US 2,139,899 Registered
Instant 3D US 2,155,549 Registered
Micrografx Flowcharter US 2,163,886 Registered
Micrografx Designer US 2,165,798 Registered
Micrographics US 2,165,870 Registered
Graphics Suite
Simply 3D US 2,185,865 Registered
Webtricity US 2,190,684 Registered
Living Flowcharts US 2,204,258 Registered
Micrografx Chili for US 2,222,604 Registered
Children
Miscellaneous Design US 2,244,602 Registered
NetworkCharter US 2,273,186 Registered
IsoCharter US 2,289,584 Registered
EnterpriseCharter US 2,298,820 Registered
Swimlane US 75/362,573 Pending
QuickVector US 75/390,385 Pending
Process Walker US 75/527,212 Pending
Intelligent Graphics US 75/557,953 Pending
@ Work
Ishapes US 75/561,241 Pending
Igrafx US 75/592,291 Pending
Igrids US 75/632,204 Pending
Idiagrams US 75/632,240 Pending
Iprojects US 75/632,241 Pending
The Process Portal US 75/709,222 Pending
Image2Web US 75/861,802 Pending
Image2Web US 75/861,824 Pending
Igrafx IDEF0 US 75/887,582 Pending
Orgcharter US 75/914,431 Pending
Advanedge Technologies US 1,909,808 Registered
</TABLE>
<PAGE>
Exhibit "D" attached to that certain Intellectual Property Security Agreement
dated March 21, 2000.
<TABLE>
<CAPTION>
EXHIBIT "D"
MASK WORKS
<S> <C> <C> <C> <C>
Mask Work
Description Country Serial No. Reg. No. Status
- ----------- ------- ---------- -------- ------
N/A
</TABLE>
<PAGE>
EXHIBIT A
The Collateral consists of all of Borrower's right, title and interest
in and to the following:
All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above;
All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, trademarks, service marks,
trade styles, trade names, patents, patent applications, leases, license
agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower;
All documents, cash, deposit accounts, securities, securities
entitlements, securities accounts, investment property, financial assets,
letters of credit, certificates of deposit, instruments and chattel paper now
owned or hereafter acquired and Borrower's Books relating to the foregoing;
All copyright rights, copyright applications, copyright registrations
and like protections in each work of authorship and derivative work thereof,
whether published or unpublished, now owned or hereafter acquired; all trade
secret rights, including all rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; all mask work or similar rights available for
the protection of semiconductor chips, now owned or hereafter acquired; all
claims for damages by way of any past, present and future infringement of any of
the foregoing;
All the stock of Image2Web, Inc. now owned or hereafter acquired by
Borrower together with all dividends, stock dividends, stock splits,
distributions, rights, proceeds, and any other property receivable or otherwise
distributable in respect of, or in exchange for, or in substitution of any and
all such stock.
All Borrower's books, records, data, plans, manuals, computer software,
computer tapes, computer systems, computer disks, computer programs, source
codes and object codes containing any information, pertaining directly or
indirectly to any of the Collateral and all rights of Debtor to retrieve data
and other information pertaining directly or indirectly to the Collateral from
third parties, whether now existing or hereafter arising. and any and all
claims, rights and interests in any of the above and all substitutions for,
additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not include
Micrografx, Inc.'s interest in the stock of InterCAP Graphics Systems, Inc. now
owned or hereafter acquired by Borrower or the dividends, stock dividends, stock
splits, distributions, rights, and proceeds, or other property distributable in
exchange for, or in substitution of any and all of capital stock of InterCAP
Graphics Systems, Inc.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> MAR-31-2000
<CASH> 3,526
<SECURITIES> 567
<RECEIVABLES> 7,969
<ALLOWANCES> 2,914
<INVENTORY> 628
<CURRENT-ASSETS> 10,654
<PP&E> 15,492
<DEPRECIATION> 12,714
<TOTAL-ASSETS> 32,008
<CURRENT-LIABILITIES> 11,720
<BONDS> 0
0
0
<COMMON> 122
<OTHER-SE> 14,290
<TOTAL-LIABILITY-AND-EQUITY> 32,008
<SALES> 28,110
<TOTAL-REVENUES> 28,110
<CGS> 6,212
<TOTAL-COSTS> 6,212
<OTHER-EXPENSES> 30,325
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 418
<INCOME-PRETAX> 8,790
<INCOME-TAX> 463
<INCOME-CONTINUING> 9,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,253)
<EPS-BASIC> (0.81)
<EPS-DILUTED> (0.81)
</TABLE>
